“We will pursue this opportunity to the point it makes sense.”
Those were Ericsson’s (ERIC) words on July 23, the day before Nortel Networks Corp.’s (NT) wireless unit went up for auction, the day the Sweden-based equipment maker decided to duke it out for the CDMA and LTE holdings.
And, apparently, $1.13 billion for Nortel’s wireless business makes sense for Ericsson, which beat out Nokia Siemens Networks and private-equity firm MatlinPatterson. So what does $1.13 billion buy Ericsson? And what difficulties lay ahead?
“It’s pretty clear that the business is about gaining customers in North America, fending off competitors and securing long-term maintenance and support service revenues as CDMA sunsets,” said Peter Jarich, research director at Current Analysis.
That’s for sure. Soon, Ericsson will inherit coveted contracts with carriers including Verizon Wireless (VZ), Sprint Nextel Corp. (S), U.S. Cellular (USM), Bell Canada and Leap Wireless (LEAP), almost all new customers for the world’s No. 1 maker of wireless networking gear.
One of the challenges, though, is that Ericsson also will jump into a line of business in which it’s never dabbled: CDMA. While LTE is expected to serve as the foundation of next-gen mobile wireless services, a number of carriers continue to rely on CDMA technology. But Ericsson has to execute its strategies just right or risk bombing in a new market. The best approach would be to pour money into R&D and marketing for the CDMA division, said Jarich. Problem is, Ericsson hasn’t hinted at such plans.
“Given the absence of references to Nortel’s CDMA portfolio in its announcement or press conference, it’s not clear that Ericsson is prepared enough on this front,” he said.
However, Ericsson does appear ready to lead the way in LTE.
“If Ericsson can deal with the merger integration issues in less than a year, [it] could become North America’s dominant wireless infrastructure vendor,” said P.J. Louis, president of consultancy P.J. Louis LLC, which advises telecom and tech companies in need of operational restructuring.
Heck, the stakes could go even higher.
“Ericsson may also become the world’s driving force behind LTE,” Louis said in an analysis for Garson Lehrman Group. “In other words, game-changer.”
Of course, an Ericsson takeover of Nortel’s wireless resources doesn’t just mix it up for customers – rivals, especially NSN, have been hit hard by the deal.
“Juxtaposed with its 21 percent revenue decline in 2Q09, the Nortel deal would have represented a major boost to NSN,” John Byrne and Michael Sullivan-Trainor of Technology Business Research Inc. (TBR) wrote in a July 27 client memo. “NSN now faces a long uphill battle to improve its position in North America.”
NSN executives know they’re in for a tough time. But they’re trying to stay optimistic about losing Nortel to Ericsson.
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