Ericsson AB is open to a transaction to counter a move by rivals Nokia Oyj and Alcatel-Lucent SA to combine and overtake the Swedish company as a leading provider of network equipment, people familiar with the plans said.
Ericsson chief executive Hans Vestberg plans to gather with his top managers next month to discuss strategy, said one of the people, who asked not to be identified discussing private deliberations, adding that a key area is what Ericsson can do to respond after Nokia’s US$16.6 billion acquisition of Alcatel-Lucent.
The shift in thinking at Ericsson, which has so far relied on smaller purchases, underscores a need by network providers to offer a more complete range of products. Telephone carriers are expanding to wireless, broadband and video access, while seeking vendors who can build networks for all such services.
“I see no reason why we, given the right preconditions, would exclude a larger deal,” Ericsson chairman Leif Johansson said in an interview earlier this month. “[However,] as you know, there are not that many left.”
Ericsson was close to making a bid for Alcatel-Lucent late last year, but walked away because of concern that a transaction would not bring enough savings and other benefits, one of the people said.
Last month, Alcatel-Lucent agreed to be bought by Nokia, a combination that is set to surpass Ericsson in sales.
Ericsson is the world’s No. 1 supplier of equipment for wireless networks, but that market is not expanding and is in transition as telecoms demand wireless and fixed solutions for moving data to and from mobile phones, smart TVs, laptops and the Internet of Things.
Nokia’s Alcatel-Lucent purchase gives it more fixed-line assets as demand for video services, such as Netflix Inc, surges.
China’s Huawei Technologies Co (華為) also provides both wireless and fixed-line networks.
Highlighting how Ericsson tried to make a deal with Alcatel-Lucent work, it also evaluated a joint bid with Nokia with a goal of splitting up Alcatel-Lucent’s assets, a source said.
With Alcatel-Lucent off the table, Ericsson has fewer options to gain the scale needed to keep its leading position.
Pierre Ferragu, an analyst at Bernstein in London, said a “natural route” for Ericsson would be to buy Juniper Networks Inc, a maker of Internet routers, and optical networks maker Ciena Corp. Either target could help Ericsson “restore old order and avoid being marginalized,” Ferragu said.
Ericsson is not confident that Juniper’s technology is what it needs in an increasingly software-dominated industry, one of the people said.
“Ericsson cannot seem to grow fast enough on the fixed side, so scaling organically to compete is not really possible,” Stockholm-based Swedbank AB analyst Mathias Lundberg said. “Nokia will be a strong rival if they can integrate as planned, so there is naturally pressure for Ericsson to seriously consider their options.”
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