Best of 2007: Ericsson

Best known as an international wireless giant, Ericsson’s purchase of TANDBERG Television capped a roughly two-year, $5 billion-plus run (including deals for GPON vendor Entrisphere Inc. and edge router maker Redback Networks Inc.). These acquisitions have given the company the wireline portfolio that, until recently, had kept it from earning full-service provider status.

Ericsson’s President and CEO Carl-Henric Svanberg

But Ericsson won much more than acquisitions and a chunk of the much-coveted AT&T Inc. IPTV infrastructure business this spring. It won mindshare with top executives and service providers throughout North America, not to mention valuable connections to content companies and broadcasters through the TANDBERG deal.

However, company evolutions are not without growing pains. Ericsson announced lower than expected results for the third quarter of this year, blaming a shortfall in sales of “mobile network upgrades and expansions.” And while its wireline acquisitions could end up being a sort of savior, having the right assets is only part of the transformation.

TELUS CTO Ibrahim Gedeon said at the mid-year mark that Ericsson needs to focus on bringing the pieces of its IPTV solution together. “That includes network management, billing and OSS,” he said.

Early returns on the company’s transformation showed the greatest growth was achieved by Ericsson’s multimedia group — which includes video offerings — as it posted a 31 percent increase from third quarter 2006 to the same quarter this year. Meanwhile, the vendor’s professional services group posted a 26 percent year-over-year increase in sales.

Ericsson claimed operating income in the quarter for multimedia was slightly above breakeven level. And the company says its mobile platforms, service-delivery platforms, TANDBERG and charging all are showing strong growth with healthy margins. Areas with limited sales, however, include IPTV, IMS and messaging; the vendor calls these “new business development areas with significant R&D investments.”

As is the case with acquisitions, attention is focused on basic assets such as staff, product lines and customer bases that the buying company gains. A closer look at the $1.4 billion deal for TANDBERG brought assets that are tough to put a price on, but in Ericsson’s case, portend to help it evolve beyond traditional telecom services. Cases in point include TANDBERG’s strong ties with Tier 1 content owners — including CBS, CNN, HBO and NBC — that could help Ericsson better understand how to match its wireline and wireless opportunities with the multiplatform distribution plans of TV networks and movie channels, among others. It also should be mentioned that TANDBERG has been working with Intel Corp. to create an innovative publishing system to deliver content using different distribution platforms — a huge and critical focus area for content owners seeking to use more than cable and telco networks to provide video to a broader and more demanding customer base.

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