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Cisco + Ericsson: Friends With Benefits

Cisco and Ericsson have been forced into each other's arms by that other courting couple, Nokia and Alcatel-Lucent.

November 9, 2015

4 Min Read
Cisco + Ericsson: Friends With Benefits

Cisco and Ericsson have, it seems, downloaded the communications networking industry equivalent of the Tinder app and found each other to be compatible.

By forging an extensive global relationship that incorporates multiple business and marketing couplings -- it's like a technology marketing Kama Sutra -- they have each found a partner that can meet certain needs, combining Ericsson's strength in mobile networking and professional services with Cisco's prowess in packet-based technology and early-stage virtualization. (See Cisco & Ericsson Forge Killer Partnership.)

But before anyone gets excited, this doesn't currently look like a relationship that will end with wedding bells -- the emotional attachment doesn't go anywhere near that territory just yet.

It's more a partnership that has its roots in Espoo and Paris. That's because I think this relationship is a reaction to the impending acquisition of Alcatel-Lucent (NYSE: ALU) by Nokia Corp. (NYSE: NOK): That M&A deal will forge an integrated communications networking technology giant with many of the attributes needed to survive the current upheaval that is set to eradicate many traditional networking vendors. (See AlcaLu Deal Makes Us 'More Complete' Than Ericsson, Says Nokia CTO and Nokia Makes €15.6B Bid for Alcatel-Lucent.)

What am I talking about? Well, as the industry heads towards a world that will be defined by automated, intelligent, high-capacity distributed cloud architectures with very high-speed wireless connections at the edge, a combination of mobile, IoT, SDN, NFV, cloud, IP, video, security, analytics and packet transport smarts will be needed to meet the demands of the next-generation communications service providers (including the web-scale giants such as Google, Facebook and Netflix).

Few companies even come close to having that full set of capabilities, either within a broad portfolio or through an ecosystem of close, tightly integrated partners. Huawei Technologies Co. Ltd. has many of those attributes, combined with a thriving enterprise and mobile handset business and a fierce determination to dominate the global market, hence its almost startling growth rate. (See Huawei's H1 Sales Grow 30% to $28.3B.)

Huawei's growth already had the rest of the market on high alert -- then came Nokia's bold move for AlcaLu. In my mind that combination forced every vendor in the industry, in particular the mid-sized and other large players, to scour the market for friendly companies with which to merge or closely align.

Both Ericsson and Cisco will have taken a long hard look at their options in reaction to the Nokia/AlcaLu move and I have little doubt that the Swedes will have taken a close look at Juniper Networks Inc. (NYSE: JNPR) in particular. (See M&A Speculation Swirls Around Juniper.)

But Ericsson always said it was wary of reacting to Nokia's move with a major acquisition of its own, partly because of the upheaval (financial and human in particular) that can cause. (See Will Ericsson Join the M&A Arms Race? and Ericsson Not Planning Big M&A Response to Nokia/AlcaLu.)

A global partnership gives Ericsson and Cisco flexibility, though it also limits the depth of the combined offerings and insight into each other's plans.

Then there is the human factor to consider: To what extent do the two companies agree on how open source technology will be integrated into commercial communication services platforms? Which company will take the lead and have the best ideas in areas where neither is a specialist, such as security and analytics? Who is the boss?

And, of course, in any relationship of this type, there is the subject of exclusivity. Are they allowed to see other companies? What are the deal-breakers? If Cisco leaves the cap off the toothpaste too often, will Ericsson kick up a fuss?

Figure 1: The new relationship between Cisco and Ericsson could get complicated but could ultimately be best for the health of both parties. The new relationship between Cisco and Ericsson could get complicated but could ultimately be best for the health of both parties.

There are many plus points to the type of relationship Cisco and Ericsson have forged but there are also plenty of ways in which it can go wrong and fall apart. Being friends with benefits, rather than swapping engagement rings, might just work for these two proud and influential companies, as it leaves the door open for the relationship to go either way.

The key thing is that Cisco and Ericsson have actually done something -- they are acting to protect their futures, even though they already had a better chance than most of surviving the next decade.

As my colleague Steve Saunders has pointed out, this is crunch time for the industry: Not everyone will survive. (See Incumbents: Do or Die.)

So what's your company doing about it? Is your board using the same relationship app as Cisco and Ericsson to find a suitable partner or M&A target? For your sake I hope so.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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