Credit Suisse: Juniper Networks makes sense for Ericsson

Juniper Networks would be a good fit for Ericsson if the Swedish infrastructure company decides it needs a large-scale acquisition to fend off a combined Nokia and Alcatel-Lucent, analysts at Credit Suisse said.

In a research note published by Barron's, the analysts note that Ericsson chiefs appear to be warming to the idea of a large-scale takeover that would shore up the company's position against a merged Nokia and Alcatel-Lucent. However, the analysts concede there are likely only three targets left with the scale that Ericsson would need: Juniper Networks, Ciena and Samsung's infrastructure business.

Of the three, Credit Suisse's analysts believe Juniper Networks would add the most value to Ericsson. Such a tie-up would boost Ericsson's position in the field of IP routing--in particular service provider routing where Juniper Networks holds a 17 per cent share compared to Ericsson's 2 per cent share.

Ericsson's strong position in wireless infrastructure would open cross-selling opportunities with Juniper Networks' customer base, specifically U.S. carriers Verizon Communications and AT&T, the analysts said. North America has become a weak point for Ericsson in recent quarters: sales to the region fell 8 per cent quarter-on-quarter in the first three months of 2015, and were flat year-on-year.

Credit Suisse' analysts also noted that Ericsson has deep ties with Juniper Networks due to a previous investment in its rival, which has left the pair with a large bank of intellectual property.

The analysts speculated that Ericsson could boost its earnings per share by 15 per cent in 2016 if it agreed a deal to acquire Juniper Networks for SEK90 billion (€9.6 billion/$10.4 billion) and funded the deal solely with debt.

On the flip side, the analysts noted that Ericsson has enjoyed mixed results from its past acquisitions, and that Juniper Networks has lost share in the routing market since 2008 and made little progress in parallel markets. Ericsson could also face higher costs as a result of the acquisition, they said.

Citigroup analyst Ehud Gelblum last week wrote off speculation that Ericsson is seeking a large-scale acquisition, stating that the investment bank does not believe that Ericsson's management has had a change of heart regarding its merger and acquisition strategy, sister publication FierceTelecom reported.

For more:
- see this Barron's article
- view this Fierce Telecom report
- see Ericsson's first quarter earnings statement [PDF]

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