Michael Soper, telecom analyst at TBR, says Cisco and Ericsson will gain first-mover advantage over the Nokia and Alcatel-Lucent entity.
In November 2015 rivals Cisco and Ericsson announced a strategic partnership to create an end-to-end supplier made up of the market share leaders in carrier IP and wireless with the potential to address customer needs in networking, cloud, mobility and services.
The partnership further fuels the ICT arms race, which shifted into high gear with Nokia’s acquisition of Alcatel-Lucent.
While Nokia’s $17 billion acquisition of Alcatel-Lucent creates a single entity, Cisco and Ericsson will go-to-market through a large-scale technology partnership, shifting vendor economics. Both entities will leverage expanded resource pools to reap cost savings due to larger economies of scale. Also, the competing entities will tap into larger R&D, sales and channel resources to quickly develop, package and deliver combined solutions for the service provider and enterprise markets over the next several years.
In the short-term, TBR expects Ericsson and Cisco to gain first-mover advantage over the Nokia entity. Partnering enables Ericsson and Cisco to forego the rigors of full integration and introduce co-solutions ahead of rivals. Nokia and Alcatel-Lucent will counter by positioning their solutions as less risky in the eyes of customers who prefer offerings from a single vendor.
Alcatel-Lucent sales in Q4 2015
Core Networking €2,047 million (+14%)
IP Routing €778 million (+17%)
IP Transport €772 million (+19%)
IP Platforms €497 million (2%)
Access €2,117 million (+13%)
Wireless Access €1,380 million (+14%)
Fixed Access €666 million (+21%)
Managed services €61 million (–36%)
Alcatel-Lucent ends its run as a standalone company by concluding the Shift Plan and delivering record operating margin
Alcatel-Lucent’s final quarter as a standalone company ended with it achieving several Shift Plan goals, including surpassing fixed cost reduction and free cash flow targets, but falling short of Core Networking profitability and divestment targets. In Q4 2015, restructuring led to an operating margin of 13.3 percent, a record for the company. Despite financial improvements made during the Shift Plan’s implementation, TBR believes Alcatel-Lucent maximized value with its acquisition by Nokia.
Alcatel-Lucent significantly improves Nokia’s market share in China and North America and brings with it an end-to-end telecom networking portfolio spanning wireless and fixed technologies. Unfortunately, its revenue growth outlook is equally as muddled as Nokia’s, with LTE deployments in China and capacity enhancement activity in the U.S. expected to wind down in 2016.
Nokia closed its acquisition of Alcatel-Lucent, enabling portfolio integration
On January 14th Nokia’s acquisition of Alcatel-Lucent closed, beginning the process of winding down the Alcatel-Lucent brand and creating the world’s third-largest communications infrastructure, software and services vendor by revenue, behind only Huawei and Ericsson.
The combined entity leverages a larger resource pool and portfolio with which to address the transformation underway in the telecom industry from hardware-focused silos to software-mediated networks. This transition must be accomplished amid a raft of existing and new information and communications technology (ICT) competitors.
Alcatel-Lucent’s assets will undergo change as TBR believes Nokia will eliminate redundancies in areas such as SG&A, while maintaining current R&D investment levels to capitalize on Alcatel-Lucent’s Bell Labs R&D unit, which remains Alcatel-Lucent’s most attractive asset given its patent trove, engineering talent and nascent consulting business.
Michael Soper, telecom analyst at TBR
