How Ericsson transforming as an ICT provider

Ericsson is progressing through its restructuring, which will facilitate the company’s transformation into an ICT provider by directing resources towards cloud, NFV, and SDN.

Restructuring will result in a leaner workforce and streamlined R&D organization, enabling Ericsson to more quickly respond to market changes. As it is, Ericsson is one of telecom’s most forward-thinking vendors.

Capitalizing on the convergence of IT and telecom is a long-term initiative, while in the short term Ericsson will continue to capitalize on operator demand for its services capabilities and radio products.

Ericsson grew revenue 12.7 percent despite core customers in the U.S. restricting capex spend to focus on acquisitions and acquiring spectrum. Operators in China accelerated LTE rollouts, boosting Networks sales, while Managed Services revenue grew 30 percent on increased demand in Europe and India.

Ericsson can differentiate in systems integration to compete against a combined Nokia and Alcatel-Lucent

Ericsson realized early that the convergence of IT and CT would necessitate significant investment in professional services and, specifically, systems integration. As solutions move more towards open standards, vendors need to add systems integration to their list of core capabilities. Ericsson is ahead of competitors, including Nokia and Alcatel-Lucent, in this area due to years of internal investment and savvy tuck-in acquisitions. Ericsson will remain ahead even when Nokia completes its acquisition of Alcatel-Lucent in 2016.

Ericsson strategy

Without question, a combined Nokia and Alcatel-Lucent creates a more formidable competitor for Ericsson. The combined entity can come to market with an end-to-end communications networking portfolio and leverage their combined R&D capabilities to continue innovating. However, both Nokia and Alcatel-Lucent downsized their services organizations as part of restructuring and only recently pivoted to scaling up resources in C&SI. They are largely leveraging partnerships with HP and Accenture rather than investing internally, which is the opposite approach taken by Ericsson.

Ericsson partnered with Intel on server hardware to secure a stake in telco cloud and virtualization, distancing itself from traditional competitors

In March, Ericsson announced it will deliver hardware, co-developed with Intel, using the firm’s Rack Scale Architecture. Called the Hyperscale Data Center System 8000, the server is meant to fill a gap in the hardware provided by server vendors to meet the high-scale needs of telecom operators. Ericsson’s new data center solution, expected to be available later this year, will be integrated with the company’s cloud storage and policy management (using recently acquired Apcera) and data center security assets (obtained from partner Guardtime).

Together, these form a complete hardware and software data center virtualization solution. Additionally, Ericsson will offer its Service Provider SDN and a full suite of virtualized network functions for operator networks. Ericsson will be able to deliver a comprehensive solution to all operator transformation scenarios by combining its data center solution with its access, transport (via Ciena) and global services portfolios.

Ericsson elected to develop its own data center hardware due to the company’s concern that the IT suppliers that offer servers, storage and comprehensive services for virtualization could capture substantial share of operator accounts, relegating Ericsson to a software application or network access provider. While the roadmap for virtual telecom infrastructure is based on open system and multivendor solutions, leaving the door open for Ericsson to retain substantial share, the company is loath to give up the hardware opportunity.

Michael Soper, telecom analyst at Technology Business Research
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