Ericsson and Cisco have formed a global business and technology partnership that aims at helping them innovate and compete more effectively in their target markets – service providers, enterprise IT and the Internet of Things (IoT).
The pair anticipate that the relationship will generate $1 billion or more in additional sales for each company by 2018.
The multi-faceted partnership will bring together Ericsson’s strength in mobility, managed services and network management with Cisco, the leader in the IP and enterprise space.
“In a world driven by mobility, cloud, and digitisation, the networks of the future will require new design principles to ensure they are agile, autonomous, and highly secure. Ericsson and Cisco plan to meet this challenge together,” the companies said in a joint statement.
To this end, they plan to offer end-to-end products and services spanning network architectures including 5G, cloud, IP, and IoT – from devices and sensors to access and core networks to the enterprise IT cloud.
"With the pace the market is moving, the successful companies will be those who build the right strategic partnerships to accelerate innovation, growth, and customer value,” said Chuck Robbins, chief executive officer, Cisco.
He noted that a partnership was preferable to an acquisition. “When we think about the ability to move with speed, we think partnerships give us that ability, more so than acquisitions, which can bog you down for quite a while,” he said.
The deal was described as ‘a decisive countermeasure to the significant threat posed by the merger of services giant Alcatel-Lucent with equipment vendor Nokia’, by Dan Rayburn, principal analyst at Frost & Sullivan in his analysis for streamingmedia.com (see also Nokia to swallow Alcatel-Lucent in €15.6B deal).
The three main goals of the Ericsson-Cisco partnership are:
- offering service provider customers an end-to-end product and services portfolio, and joint innovation that accelerates new business models,
- creating the mobile enterprise experience of the future through a highly secure technology architecture for seamless indoor/outdoor networks, and
- using the combined scale and innovation capabilities of both companies to accelerate the platforms and services needed to digitise countries and create the Internet of Things.
The partnership will be put into effect through multiple agreements that include commitments to network transformation through reference architectures and joint development, systems-based management and control, a broad reseller agreement, and collaboration in key emerging market segments.
The parties have agreed to discuss ‘fair, reasonable, and non-discriminatory’ (FRAND) policies and enter a licensing agreement for their respective patent portfolios as they smooth the way towards joint innovation. As part of this agreement, Ericsson will receive license fees from Cisco.
Teams from both organisations will also begin working on a joint initiative focused on software defined networking (SDN) and network functions virtualisation (NFV) as well as network management and control.
For Ericsson, the extended addressable market is primarily in professional services, software and resell of Cisco products. In addition to revenue generation, Ericsson also expects to achieve significant cost synergies, primarily in expenses of SEK 1 billion in 2018.
Hans Vestberg, president and chief executive officer, Ericsson, said: "I am excited to work with Cisco on continuing to shape the Networked Society. Foremost, we share the same vision of the network's strategic role at the centre of every company's and every industry's digital transformation. Initially the partnership will focus on service providers, then on opportunities for the enterprise segment and accelerating the scale and adoption of IoT services across industries. For Ericsson, this partnership also fortifies the IP strategy we have developed over the past several years, and it is a key move forward in our own transformation."
Cisco’s Robbins added: “Today's announcement brings together two visionary industry leaders, with complementary cultures and track records of innovation. We have worked with Ericsson during the last year on developing a strategy for future industry leadership, and can start executing together today. Our partnership will drive growth for both companies, unique value for our customers, and incredible innovation for the industry."
Operators responded positively to the development. “We welcome the partnership between Ericsson and Cisco which we believe 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,” said Vittorio Colao, Group Chief Executive, Vodafone, via the Ericsson-Cisco press release.
Randall Stephenson, chairman and chief executive officer, AT&T, commented: “Cisco and Ericsson's announcement further reinforces the importance of seamlessly integrating IP and wireless solutions. This type of initiative is in line with the plans and investments we've laid out over the last four years for integrated solutions.”