The companies outlined a broad, multi-faceted relationship that’s been 13 months in the making – perhaps around the time both companies caught wind of Nokia’s plans to acquire Alcatel-Lucent, two companies Ericsson and Cisco compete directly against. The deal comes as other mega-mergers consolidate the networking and IT industries, such as Dell’s plan to acquire storage titan EMC.
Under the arrangement, Cisco and Ericsson will combine their respective strengths in routing, enterprise networking, wireless, data center, cloud, management and control, and global services to deliver integrated systems for service providers, mobile enterprises, and digitized countries harnessing sensor-based networks commonly referred to as an Internet of Things.
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Both organizations will also begin working on a joint initiative focused on SDN/NFV and network management and control, the companies said, including the development of an integrated, multivendor management system and virtual network functions.
Future activities will focus on optimized backhaul, indoor/outdoor access, systems integration, managed services and tech support for enterprises.
Ericsson will resell Cisco products and the companies will cross-license each other’s patents, which combined number 56,000. Ericsson will receive license fees from Cisco.
The partnership will be active on 180 countries, combine $11 billion in R&D, involve 48,000 employees and rely on 76,000 service employees – 65,000 from Ericsson. It is buttressed by a commitment from each company’s CEO to drive the engagement, with quarterly reviews, a pledge of accountability, and a detailed go-to-market strategy.
The companies each expect to generate $1 billion in revenue by 2018.
Time to market without the entanglements and uncertainties of a complicated, large-scale merger was key to the combination, both companies said.
“For Ericsson, this is the best option, the best way to maximize efficiency,” said Hans Vestberg, president and CEO, Ericsson. “A partnership is the only way to make it efficient.”
“This is the right move for us right now,” said Cisco CEO Chuck Robbins. “It allows us to move now, with solutions immediately.”
Nokia and Alcatel-Lucent aren’t expected to close their merger until the first half of next year.
As far as product and partnership overlap, Vestberg said Ericsson for now will continue to offer its SE line of edge routers for RAN applications. The SE line came from Ericsson’s 2006 acquisition of Redback Networks.
Ericsson also has a long-standing resale partnership with Juniper Networks for routers. Vestberg said the focus will shift to Cisco for a broader portfolio to “address new markets and meet customer expectations.”
He stressed, however, that the Cisco partnership – the biggest for Ericsson – will complement others and is not intended to replace them.
Centerview Partners advised both companies on the strategic partnership.