Cisco/Ericsson: Assessing the mega-deal a year later

Layoffs, executive change hasn’t prevented partnership from hitting some significant milestones, but Ericsson's finanacial challenges might change that

When it was announced a year ago, the Cisco/Ericsson partnership was hailed as “the right move for us right now,” according to Cisco CEO Chuck Robbins to create the networks of the future.

While the partnership has done well – the companies say they have closed 60 deals together -- Ericsson is being battered financially this year and the impact that will have on the partnership could change it in the future.

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The partnership started with some ambitious goals – not the least of which was to generate $1 billion in revenue for each company by 2018.

Under the agreement announced Nov. 9, 2015, Cisco and Ericsson combined their core strengths in routing, enterprise networking, wireless, data center, cloud, management and control, and global services to offer integrated systems for service providers, mobile enterprises, and Internet of Things packages. Future activities, the companies said would get backhaul, indoor/outdoor access, systems integration, managed services and tech support for enterprises. Ericsson also gets to resell Cisco products and the companies will cross-license each other’s patents, which combined number 56,000. Ericsson gets license fees from Cisco.

At the time of the agreement the combined partnership had about 76,000 employees managing networks for business customers — 11,000 from Cisco and 65,000 from Ericsson.

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A year later however, the employee numbers have certainly changed – though by exactly how many dedicated to the specific deal it is hard to discern. Both companies have had layoffs – Cisco cut 5,500 in August, Ericsson laid off about 11,000. But Ericsson’s networking business in particular has been hammered this year financially and in July ousted one of the architects of the deal -- President and CEO Hans Vestberg.

Things haven’t gotten much better for Ericsson of late. Reuters reported in October: “The crisis at Ericsson deepened…when the world's biggest maker of mobile network equipment reported a 94% plunge in quarterly operating profit and tumbling sales. The Swedish company is struggling with a drop in spending by telecoms companies, with new 5G technology still years away, and stiff competition from Finland's Nokia and China's Huawei.”

In the same report, Reuters quoted UBS financial analysts stating “with Ericsson struggling and its stock sliding, speculation has resurfaced it could be a bid target for Cisco. "We would rarely rule out speculated consolidation but feel it is unlikely," UBS analysts said, adding there was a lack of overlap between the two businesses and Cisco's prized 30% operating profit margin would only be dragged lower by Ericsson.

As for exactly how much revenue has come from the partnership – both companies say that over 60 deals have been signed – a grand total hasn’t been revealed.

“Winning more than 60 deals across all regions, doubling the number of wins each of the last two quarters– with majority of those deals not possible to win without the partnership wrote Doug Webster, Vice President of Global Marketing and Corporate Communications for Cisco on the anniversary of the deal.

“We’ve extended the partnership from its original service provider focus to now also include the enterprise and public sector segments with particular demand in transportation, Smart City, and utility areas, as well as into the web segment,” Webster wrote. “Our global coverage is now complete after recently receiving regulatory approval to now operate in Brazil, and we have increased the scope of technologies being included in the partnership with the addition of security, WiFi and datacenter switching portfolios. Ericsson has also worked aggressively to extend their leading services capability by achieving more than 2,500 Cisco networking certifications or qualifications to better address the IP Transformation needs of customers worldwide.”

Webster listed a number of other milestones in the past year, including:

  • Extending the partnership into the enterprise and public sector segments with particular demand in transportation, Smart City, and utility areas, as well as into the web segment
  • Completing global coverage after receiving regulatory approval to now operate in Brazil
  • Increasing the scope of technologies being included in the partnership with the addition of security, WiFi and datacenter switching portfolios
  • Delivering Ericsson-certified solutions in different areas, as Mobile Backhaul, IP Core, and SP WiFi where certification is ongoing, with additional solutions on the way, where Cisco is contributing with products, expertise and use cases.
  • Developing a joint services portfolio based on Ericsson’s scale and skill in systems integration and managed services and Cisco’s IP competence. The portfolio is developed in the areas of Networks, Enterprise, SP WiFi and small cells, Data Center and Cloud and Security.
  • Achieving around 2,500 Cisco networking certifications or qualifications by Ericsson sales and service engineers

Analysts say the companies have made some nice progress in the past year but wonder how much enterprise impact the partnership has really had.

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“The most significant activities are in joint services and certifications. That builds a strong foundation underneath joint development and sales. It gives the appearance that there won’t be finger pointing when something goes wrong, but joint resolution,” Jim Duffy, senior analyst, networking for 451 Research.

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