Ericsson and Cisco pool resources to earn $1 billion each

Ericsson and Cisco make a merger-like deal, but really isn't to face rapidly changing global market and earn up to $1 billion for each company by 2018.

Fortune reported that European gear mobile communication manufacturer Ericsson and Silicon Valley Internet gear giant Cisco went into a partnership that is focused on future networks that will help manage the cross-selling for the companies' end-to-end portfolio. The companies have been discussing the deal for 13 months. They, however, haven't discussed the commercial nature of the partnership. The companies predicted that the "non-deal deal" will lead to incremental revenues worth $1 billion for each company by 2018.

According to the Wall Street Journal one of the major challenges that both companies are facing is the declining smartphone market, which is their biggest customers where they get most of their revenues. Both companies are also facing tougher competition against Huawei. There are also threats from the planned $16.8 billion Alcatel-Lucent SA acquisition by Nokia Corp. According to Stanford C. Bernstein analyst Pierre Ferrag said Huawei and Nokia have expertise in wireless and internet technologies, which is something that Cisco and Ericsson are planning to level with.

In a report by Forbes, Analysys Mason Research Director Dana Cooperson said, "Given Ericsson's annual revenues of more than USD26 billion and Cisco's of more than USD49 billion, and opportunities in new enterprise-driven communications and IoT services, we think each company's goal of driving USD1 billion in new revenues by 2018 based on this strategic partnership is achievable."

One explanation of the partnership is Cisco will pay Ericsson licensing fee to use its patents. Ericsson is an expert in selling to telecommunications providers, which is a market that Cisco wants to penetrate. Meanwhile Cisco provides for big companies, which is crucial for communications products. Both companies are old and are facing slowdown in revenue growth. Instead of merging, the companies agreed to work more closely.