We attended Ericsson’s (ERIC $12.98) briefing at NASDAQ MarketSite in New York City today where the company’s CEO, Hans Vestberg, gave an overview of Ericsson’s transformation and future strategic direction. The main point we came away with—viewed through BroadSoft’s lens—is Ericsson’s largely clandestine strategy to expand into new customer markets, one of which—beyond traditional telecom operators and greater focus on cable MSOs, Internet, and OTT service providers—would ultimately be the enterprise. While the success of this strategy, subject to additional disclosure and execution, will take years to evolve (five years or more), we would most certainly not bet against it. Ericsson’s angle in mobile infrastructure and connectivity, in our view, serves as an important step toward cloud-based managed IT services by bridging the telecom cloud and data center cloud delivered via infrastructure-as-a-service and platform-as-a-service models.
We have argued a similar course taken by Oracle (ORCL $39.58; Market Perform) (here), albeit moving in the opposite direction from Ericsson across the enterprise-telecom pond, since its acquisition of Acme Packet/Tekelec in February 2013. This acknowledgment from Mr. Vestberg, backed by the majority stake acquired in Apcera, sends a clear signal of Ericsson’s intention to play in a $35 billion (in 2018, according to Synergy) cloud infrastructure services market, in our view, with new set of new competitors rising up from the likes of Oracle, IBM (IBM $193.11), Cisco (CSCO $24.97; Outperform), EMC (EMC $29.68; Market Perform), HP (HPQ $36.47), SAP (SAP-ETR €57.98; Market Perform), and others. We expect the upcoming capital markets day on November 13 in Stockholm to detail more of that strategy.
Ericsson is serious about enterprise hosted UC services, which we reported on back in February, subsequently readying the launch of its Mobile Unified Communication platform for enterprises for the third quarter of this year. The company argues that enterprises will in the future get hosted UC services (among other things) via mobile networks and that like many new IT services, UC/PBX is increasingly being offered as a hosted service. Besides validating the vast opportunities in the enterprise IT market via the entry, Ericsson could begin to make a real impact, raising the stakes and forcing competitors to respond or vie for similar strategy and assets. If our predictions are even remotely accurate, the communications equipment vendors, comprising Alcatel-Lucent (ALU $3.26), Huawei, Nokia Networks (NOK $8.61), and Cisco, as well as IT industry bellwethers selling IT services in the cloud to enterprises and telecom providers—Oracle, Microsoft (MSFT $47.06), SAP, IBM, HP—will need to contemplate their own defenses.
A pure-play like BroadSoft brings years of development with a single software product that is fully compatible with legacy PBXs in fixed and mobile networks—an important consideration for both carriers and enterprises. We believe that BroadSoft’s extensive feature set and product breadth—carrier-grade multitenant cloud, IMS, multifaceted delivery model, support for endpoints and enterprise VoLTE—may force Ericsson’s hand to beef up its cloud software/services strategy. Alternatively, Ericsson is a former BroadSoft OEM—it would not surprise us if the two renewed their vows.