Ciena and Ericsson: The Virtualized Merger

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The “Nortelization” process at Ciena started several years before the supplier actually bought Nortel Networks’ assets. Former Nortel executives slowly worked their way into the Ciena organizational woodwork, and it became kind of a soundless coup. By the time, the trigger was pulled on the acquisition, mainly out of financial desperation, the mindset of, as well as control by, the Canadian executives, were already well-entrenched at the company. Naturally, they have been even more careful about protecting their turf in recent times, as there has been a tremendous effort of getting human assets from Ericsson, making sure they become indoctrinated into the “Nortel” way of thinking, and so, whether the optical vendor formally merges with the Swedish company, there would be no threat to the status quo at the “American” firm. In a future buyout, there would also be the advantage of paying a lower price, as Ericsson would be in a weakened state. Furthermore, even if the government of Sweden decided to prevent such a transaction, much of the 5G heart of the company would already be at Ciena anyway. For Ciena, it is really about completely taking over the next-generation-of-wireless topology narrative away from Ericsson, striving to make the case that a customer can have a higher level of assurance in working with the former, more than necessarily getting directly into the wireless equipment space itself.

Ericsson enables Ciena to engage in a virtual acquisition with the former mainly being just a software shop for 5G. In fact, Ericsson, arguably as a desperate act to avoid getting completely cut out, is pushing its own optical boxes involving fronthaul ports. Also, Ericsson’s wireless hardware tends to be OEMed from Taiwan.

Ericsson, along with Nokia Networks, are being assaulted on all fronts. In particular, the former has failed to put itself at a better strategic advantage in influencing the 5G network topology. fibeReality partially pointed this problem out previously with the lack of interest by Ericsson in the critical interface between the optical and wireless portions of the infrastructure.

Ericsson’s prime differentiator has been in selling a wireless project to an operator as a total turnkey service, building and managing a network for a couple of decades, which allowed it to decree the rules. With 5G, the huge cost makes such a model unaffordable to the service providers. Verizon and SK Telecom (to an even larger degree) are especially taking an active role in defining the set of standards.

At least in the past, Ciena, together with ADVA Optical Networking, have stayed on top of all of these 5G architectural changes, as a whole, to a greater extent than Ericsson or Nokia. They include deployment configurations of sites, the location of the functional splits, etc.

Once again, it does not automatically mean that Ciena has to get away from its optical heritage, a prospect that we always believed was fraught with danger. Perhaps the Canadian management will prevent it from happening anyway.

However, it has all of the signs of history repeating itself, with an infiltration of an equipment supplier, and affecting its future direction. One aspect appears fairly certain right now, if it ever goes beyond a virtualized merger, it will be Ciena buying Ericsson, not the other way around.

As always, fibeReality does not recommend any securities, and this writer does not invest in any companies being analyzed by us.

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[written by Mark Lutkowitz]



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