(TNS) -- Cisco Systems and Swedish telecom giant Ericsson announced a sweeping global partnership Monday that’s a few steps short of a merger, but which should shake up the networking industry with a powerful new combination.
The two companies said they were joining forces to create “networks of the future.”
The pooling of the two companies’ research and development teams could accelerate the introduction of faster mobile devices through 5G, the next phase of mobile telecommunications. The higher speeds of 5G will provide wireless connections for many new applications, including wearables, smart homes and traffic safety, and will be a key component of the “networked society,” according to Ericsson’s research blog.
The announcement underscores the rapid changes occurring in the industry, as mobile and cloud computing and even the evolving “Internet of Things” create new demands for faster deployment of networks through software as well as hardware.
The partnership was announced jointly by Ericsson President and CEO Hans Vestberg in Stockholm and Cisco CEO Chuck Robbins in San Jose. The two said they had been working on the agreement for more than a year and would hit the ground running, with training already underway at both firms.
The news comes on the heels of the creation of a new data management and networking giant with computer maker Dell’s $67 billion acquisition of EMC, a storage and network infrastructure company. In addition, Hewlett-Packard spun off a new company, Hewlett Packard Enterprise, last week to focus on providing data, networking, mobility and cloud computing technology and services to industry.
The Cisco-Ericsson partnership has a target of $1 billion in additional sales for each of the companies by 2018, the companies said.
“This is not a normal partnership,” Vestberg said in a conference call. “This is way beyond that.”
The new partners said they will combine their abilities in routing, data center operations, networking, the cloud, mobility, management and global services. They also will sign cross-licensing agreements for their patents.
Robbins said the two industry leaders were coming together “to allow our customers to move with more speed and ourselves with more speed.”
Rapid changes in networking technology have affected telecommunications carriers who want faster turnaround times for installing new services, said Jayson Nolan, an analyst with Robert W. Baird.
“The carriers know they need to get more agile. Some of them fear Google as a competitor,” Nolan said.
Cisco and Ericsson will try to sell solutions that “are easier to use, easier to deploy and easier to modify,” he said. “Today, you buy dedicated hardware for specific applications, and it takes six months to wind up and six months to wind down. They want an infrastructure they can spin up and down in a matter of days.”
Asked in a conference call with investors why the companies didn’t merge, Robbins said the partnership “allows us to move now and deliver solutions to our customers immediately.”
Ericsson installs networking systems around the world, while Cisco is known for its networking gear. Ericsson buys networking equipment from various companies, including Cisco and Juniper Networks of Sunnyvale.
The deal announced Monday should expand Ericsson’s purchases from Cisco considerably.
In a reflection of that possibility, shares of Juniper were down 8 percent in trading Monday. There also had been speculation that Ericsson would acquire Juniper Networks, with which it has a long-standing relationship, following Nokia’s $16.6 billion acquisition of Alcatel earlier in the year.
Asked about Juniper in a conference call, Ericsson’s Vestberg noted the long relationship with the company but said Ericsson is “now getting a far broader portfolio” of capabilities with Cisco. “I am going to have to focus on the strategic partnership with Cisco,” he said. “That’s where I see the growth opportunities for us.”
The combined companies will have 76,000 employees managing networks for business customers — 11,000 from Cisco and 65,000 from Ericsson. A combined 48,000 employees work in research and development, and the companies will have 56,000 patents and a presence in 180 countries.
Robbins said a goal will be developing “seamless mobility” for business networking, so that “indoor and outdoor access” is accomplished easily through the cloud.
Cisco began the discussions “to deal with transitions we see going on with our customers,” Robbins said. “We concluded this was the best thing for us as well as for our customers.”
Vestberg said the partnership “fits in with how we want to evolve as a company. Clearly, a partnership was the only way forward.”
Stock market reaction to the announcement was muted. Cisco closed at $28.18, down nearly 1 percent. Ericsson shares were up nearly 1.63 percent to $9.99.
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