The deal is also notable as yet another signal that both companies are moving beyond their telecom comfort zones and into cloud-based services and products.
Cisco and Ericsson announced that they will be partners across the board by jointly working on a wide range of Internet infrastructure, cloud, and wireless network products. The companies say the partnership, which allows them to share patents, develop products together, and align customer service across a broad customer base, will generate $1 billion in revenue for each side by 2018.
Nokia is in the process of buying Alcatel-Lucent for more than $18 billion. Some thought that deal could prod Ericsson into acquiring Juniper Networks, but now Ericsson can tap into Cisco’s vast routing and switching portfolio without blowing money on buying Juniper or taking the time to develop new products on its own. (Juniper stock was down nearly 8 percent after the announcement.)
Ericsson attempted to breach the router market with the 2007 acquisition of Redback Networks, but it was never able to truly challenge Cisco and Juniper.
In almost the same vein, the partnership gives Cisco an entry into 5G and into cellular radio networks in general. While low margins in the cellular radio market have kept Cisco on the sidelines, Ericsson is the largest player in that space. It also has a telco services division that could be a boon to Cisco.
Competitively speaking, there’s still China-based Huawei to contend with. Huawei has a broad product portfolio of its own and has been a longtime competitor to Ericsson. Huawei has been hampered in the United States market after it was deemed to be a security risk by a congressional report.
Last month, Cisco CEO Chuck Robbins outlined his company’s plans to better serve the Internet of Things (IoT), which will also play out in the Ericsson partnership. In addition to marketing their products and services to telecommunications companies, Ericsson and Cisco will be able to take aim at manufacturing, transportation, utilities, and oil and gas verticals.
A range of contenders, including traditional industrial companies such as General Electric, is trying to address the billions of devices and sensors that will be needed for IoT use cases. Cisco and Ericsson will bring networking and security skills to the IT table to help businesses with their IoT plans.