Company Trend Analysis - Cisco Expands: Is Ericsson Next? - DEC 2017
BMI View: Cisco will continue with its acquisition spree as it looks to diversify away from its legacy core networking products. Ericsson has been mooted as a target, and while the merged company will have unrivalled scale and reach, it would also need a level of integration that neither company has so far experienced.
Cisco has announced the acquisition of BroadSoft, a cloud unified communications company, for USD1.9bn. At the same time, it has announced a partnership with Google Cloud, where consumers using their hardware equipment can run software services through Google Cloud, as well as their own datacentres. Cisco has been on an acquisition spree over the last few years, as it looks to diversify from its core networking offerings, with a focus on software and services, and we do not expect it to end anytime soon. A potential deal for Ericsson has been mooted, but it would require a level of integration that Cisco has not experienced before.
|Looking To Diversify|
|Cisco FY17 Results (%)|
The partnership with Google Cloud is beneficial for the two companies. Google can offer its products to Cisco's customer base, especially the largest enterprises, while it allows Cisco to offer a greater array of services through its core networking products, for instance Apagee software, acquired by Google in 2016, or the open-source Istio. The main target will be companies looking for hybrid cloud solutions, where they have their own infrastructure for certain applications, and want to add more capabilities for other without the addition of extra hardware. However, the partnership will continue to face strong competition from the two leaders in the field, Amazon Web Services (AWS) and Microsoft Azure.
|Cognitive Security||Tail-f Systems||Tropo||CliQr||Viptela|
|SolveDirect||Assemblage||Piston Cloud Computing||Leaba Semiconductor||Advanced Analytics Team from Saggezza|
|JouleX||Memoire Systems||MaintenanceNet||CloudLock||Observable Networks|
But acquisitions have been Cisco's main strategy towards diversification. The company acquired nine companies in 2013, six in 2014, 11 in 2015, seven in 2016 and eight so far in 2017. These are wide-ranging, from the acquisition of Jasper, an Internet of Things (IoT) platform, to AppDynamics, a cloud application and business monitoring platform. The aim is to diversify from hardware towards software and services, which is mirrored by Cisco's new reporting method. Infrastructure Platforms, its core networking offerings, remain the bulk of revenue in 2017, but applications, which include collaboration, IoT and analytics, security and services are showing greater growth.
Cisco will continue with further acquisitions, and the question must be asked as to whether Ericsson, with which it has a partnership since 2015, could be a target. The partnership has not made the positive impact the two companies might have hoped for, but a full merger would give the new company unrivalled scale and reach. However, even if a reasonable price could be agreed considering Ericsson's precarious position, integrating these two companies would provide the biggest roadblock to a successful merger.