Ericsson + Cisco Ink Strategic Deal Projected To Bring Each $1B More In Sales By 2018

It’s not another massive enterprise merger, but two of the biggest companies whose equipment and technology underpin a lot of our communications networks today are now teaming up.

Ericsson and Cisco have announced a strategic partnership, in which the two will collaborate on sales and products covering virtually the whole range of their respective businesses. This will include carrier and enterprise equipment and services; intellectual property; and products including routing, data center, networking, cloud, mobility, management and control, and global services capabilities.

The companies say that by 2018, they each expect to add $1 billion in revenues as a result of the partnership. However, they are not getting too particular in disclosing how the two giants — which together have 76,000 employees and business in more than 180 countries — will arrive there.

“Details of specific investment levels made by each partner are confidential,” a Cisco spokesperson told TechCrunch in answer to questions about the financial terms. An Ericsson spokesperson has further confirmed that there are no investments being made by either company in the other.

One small financial detail was disclosed in the announcement: after all the cross-licensing is said and done, Ericsson — which has been an active party in IP litigation — is a net receiver, getting patent license fees from Cisco as part of the deal.

“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 center of every company’s and every industry’s digital transformation,” said Ericsson CEO Hans Vestberg in a statement. “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.”

A merger was never on the table

At a time when we are seeing a lot of chopping and changing among the bigger tech companies working in areas like network hardware and services — evidenced by Dell buying EMC, HP selling off businesses in the lead-up to its own split, and more — Cisco and Ericsson working together is a sign of how some in the old guard are rethinking their position as standalone companies in the face of newer and faster businesses that might eat their lunch.

But in an interview with TechCrunch, Vestberg said that a possible acquisition, merger or even joint venture operation “was never on the table” because any of those would have slowed things down significantly between the two sides.

He also pointed out that he first started to talk about this partnership with Cisco’s chairman (and former CEO) John Chambers 13 months ago. “This is not a reaction to anything else,” he said in response to questions about the wider, current market climate for M&A.

Nonetheless, there is encroaching competition for both companies from large incumbent players like Huawei (which competes directly with Ericsson but also increasingly with Cisco), Nokia Siemens/Alcatel Lucent (which also recently merged) and even smaller upstarts moving into their common, traditional carrier and service provider market.

“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 Cisco CEO Chuck Robbins in a statement.

Robbins also noted that the two already work together in some areas. “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.”

One area where both companies have specifically been pin-pointed for disruption is in the area of virtualization.

While the Cisco and Ericsson partnership will not include any joint ventures or combined sales teams, an Ericsson spokesperson did confirm that teams from both companies will begin working on a joint initiative focused on newer areas for the pair, including software-defined networks and virtualization. He says that this will start with 400 R&D people from both companies “supporting the initial phase of joint development.”

Cisco’s SVP and chief strategy officer Hilton Romanski confirmed that the work his company is doing with Ericsson will not immediately affect existing relationships, such as a virtualization deal with VMWare. But some have already raised the question of whether the Dell/EMC deal will propel Cisco to do explore more of its own storage and data center offerings. The Ericsson partnership could propel that strategy. “Watch this space,” Romanski said.

Here is a run-down, according to Ericsson and Cisco’s announcement, of what will be included in the partnership:

  1. Service provider customers will get an end-to-end product and services portfolio, and joint innovation that accelerates new business models;
  2. New mobile enterprise services, covering security and indoor/outdoor networks;
  3. Internet of Things R&D;
  4. “End-to-end leadership across network architectures including 5G, cloud, IP, and the Internet of Things, from devices and sensors to access and core networks to the enterprise IT cloud. Customers will be able to accelerate their business transformation by drawing on the parties’ complementary capabilities, including global services capabilities such as consulting, integration, and support to managed operations across IT and networks.”
  5. In addition to the licensing fee Cisco will pay Ericsson, the patents and IP element of the deal is not to be underestimated. Together, Ericsson and Cisco have 56,000+ patents and $11 billion of research and development investment. They say they will discuss future FRAND policies and enter a licensing agreement for their respective patent portfolios, “enabling unfettered joint innovation and providing certainty for customers of both organizations.”