Ericsson inks deal with Cisco to add $1 bn extra revenue

Ericsson CEO Hans Vestberg
Telecom network vendor Ericsson announced partnership with Cisco involving routing, data center, networking, cloud, mobility, management and control, and global services capabilities.

The result of the partnership will be an additional $1 billion revenue for both companies by 2018. Plus, there will be cost savings for both.

Initially the partnership will focus on telecom service providers, then the enterprise segment and IoT services across industries.

Both companies do not share specific details on how they can make additional revenues from the deal. Ericsson will be selling some of the Cisco products. Stockholm-based Ericsson is the biggest maker of wireless networks, and San Jose, California-based Cisco is the largest maker of Internet-network gear such as routers and switches.

Precisely, Ericsson and Cisco focus on network architectures for 5G, cloud and IP, and the Internet of Things. A combination of wireless and wireline networks will be a boost for Ericsson which has shied away from big merger deals in the past.

Three telecom network operators including Vodafone, AT&T and Verizon Communications said they will benefit from the partnership between Cisco and Ericsson.

BENEFITS TO Ericsson

# $1 bn additional revenue per year
# to sell more complete network systems to carriers
# can respond to Nokia- Alcatel-Lucent combine
# achieve scale without a large merger
# savings of 1 billion kronor in 2018
# can reduce spending on developing its own Internet-routing products

“This partnership fortifies the IP strategy we have developed over the past several years and it is a key step forward in our company transformation,” said Hans Vestberg, president and CEO, Ericsson.

Ericsson will extend its addressable market and is expected to generate $1 billion or more of additional sales by 2018. Ericsson revenue fell 7 percent in the first nine months of 2015, Cisco will be announcing the financial result this week.

The extended addressable market is primarily in professional services, software and resell of Cisco products. The additional sales are expected to be accretive to operating income already in 2016. The partnership is expected to generate full-year effect from synergies, primarily in expenses of SEK 1 billion in 2018.

Ericsson and Cisco will continue to explore further joint business opportunities as the partnership progresses.

Chuck Robbins, chief executive officer, Cisco: “We have worked with Ericsson during the last year on developing a strategy for future industry leadership, and can start executing together today.”

Vittorio Colao, group chief executive, Vodafone, said: “The partnership between Ericsson and Cisco will accelerate the pace of innovation across the communications industry as ultrafast networks, cloud services, and the Internet of Things become increasingly central to our customers’ needs.”

Randall Stephenson, chairman and chief executive officer, AT&T, said that the announcement reinforces the importance of seamlessly integrating IP and wireless solutions.

Roger Gurnani, chief information and technology architect, Verizon Communications, said this global partnership has the potential to reshape the industry.

Baburajan K
[email protected]

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