'Ciscosson' Aims for Future-Proof Partnership
The CEOs of Cisco and Ericsson stated during a Q&A session Monday that their new global strategic partnership is designed for the long-term and to meet the needs of network operators currently undertaking, or about to undertake, significant transformations. (See Cisco + Ericsson: Friends With Benefits, How Will Cisco + Ericsson Be Viewed From the Front Line? and Cisco & Ericsson Forge Killer Partnership.)
Taking the opportunity to quiz Ericsson AB (Nasdaq: ERIC) CEO Hans Vestberg and Cisco Systems Inc. (Nasdaq: CSCO) CEO Chuck Robbins during a conference call Q&A session, Steve Saunders, the CEO of Light Reading -- the only industry publication invited to pitch a question during the call -- asked:
- The virtualized new IP networks that service providers are installing to upgrade their infrastructure for 21st century service have a half-life measured in decades. How do these service providers know that the solution they buy from "Ciscosson" today will be jointly supported by an integrated team in five or ten years' time? Is it really likely that a partnership that is forged during the most tumultuous period ever in the communications industry's history will last as long as the networks that you will collaborate to sell?
Vestberg responded: "You are right that we are in the most transformative times but this partnership is creating the opportunity to do next-generation networks and make them as future-proof as possible. We are both customer-centric organizations and I've already spoken with seven customers this morning." Vestberg also later told Light Reading: "This is a very long-term relationship."
Cisco's Robbins said he had also held discussions over the weekend with customers who were "comfortable" with the plans.
Earlier today the two equipment giants unveiled plans for a major strategic tie-up that will combine Ericsson's mobile and managed-services capabilities with Cisco's IP strengths and is expected to generate an additional $1 billion in additional revenues for each company by 2018.
The "Ciscosson" partners could be offering each other's products and services imminently, with both parties confirming they expect to start generating incremental revenues from their tie-up as soon as next year.
The companies revealed they have been in partnership discussions for 13 months and that they would bring products to market shortly.
"Our take is that it will be accretive [to revenues] in 2016... We have identified products and can kick this off tomorrow," said Vestberg.
The Ericsson CEO would not go into specific details about the pipeline but revealed that Ericsson will start by reselling a number of Cisco's IP products.
Cisco, meanwhile, hopes to quickly benefit from Ericsson's wireless and global services expertise, noting that its Swedish partner currently employs about 65,000 people in the services business compared with its 11,000.
The ultimate vision, however, is to develop a network management system that will integrate Cisco's new IP and virtualized service nous with the OSS/BSS capabilities of Ericsson.
Vestberg said this network management system will support "multi-vendor" deployments by operators -- something the market sees as a key incentive for investments in SDN and NFV technologies.
The partnership could help Ericsson cater more to the enterprise segment of the market, according to Bengt Nordström, the CEO of consulting company Northstream . "It lacks the sales channel for that market segment," he says. "Cisco's channel and partners program is one of the most extensive [in the industry]."
Statements published this morning included testimonials from AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ) and Vodafone Group plc (NYSE: VOD), emphasizing the attractions of the tie-up from a service-provider perspective, but Vestberg indicated that key account managers were now in the process of opening discussions with other customers about the new offerings.
He also indicated that Ericsson expects to realize another 1 billion Swedish krona ($120 million) in "synergies" from the partnership by 2018, on top of the SEK9 billion ($1.04 billion) it is expecting to generate through previously announced restructuring and efficiency initiatives.
Although Cisco and Ericsson claim to have been in talks since this time last year, Nokia Corp. (NYSE: NOK)'s €15.6 billion ($16.8 billion) move for Alcatel-Lucent (NYSE: ALU) -- announced in April -- and the growing might of China's Huawei may have convinced them to seal the deal. (See Nokia Makes €15.6B Bid for Alcatel-Lucent.)
By bringing together the world's biggest maker of IP equipment with its leading manufacturer of wireless networks, the tie-up will be a troubling one for Nokia, which has previously boasted to Light Reading that it will be a "more complete player" than Ericsson after it has acquired Alcatel-Lucent. (See AlcaLu Deal Makes Us 'More Complete' Than Ericsson, Says Nokia CTO.)
But today's deal also raises plenty of questions about the overlap between Cisco and Ericsson and how the two companies will handle customer relationships.
"We have edge routers that will continue to be in the market but [the Cisco partnership] is an extension of the strategy because we'll have a full portfolio, which we didn't before," said Vestberg when asked about the implications of the Cisco partnership for Ericsson's existing IP investments.
The tie-up could represent bad news for a number of Ericsson's existing partners, including Cisco rival Juniper Networks Inc. (NYSE: JNPR) -- which some analysts had seen as a likely takeover target for Ericsson before today's news -- as well as Hewlett Packard Enterprise , which announced a tie-up with Ericsson as recently as September. (See Juniper's Revival Continues But Doubts Persist and M&A Speculation Swirls Around Juniper.)
"It is not clear to what extent the two partnerships are overlapping or conflicting," says Nordström.
— Iain Morris, , News Editor, Light Reading