Ericsson's acquisition of Telcordia for $1.15 billion has been given the thumbs-up by analysts keen to see the company move further away from its dependency on infrastructure equipment sales.
The Swedish company's shares rose on the news, and Sanford C. Bernstein analyst Pierre Ferragu told Bloomberg said purchase price as "very good. We see the deal as well disciplined and creating good return to shareholders."
Jean-Michel Salvador, an analyst with the Paris-based brokers Alphavalue, said "Operators don't want to change their networks but they want to have them evolve, and software and services are key for that. This is a way to buy people who know a lot about network evolution," he said, adding that the price "wasn't very expensive."
Ericsson CEO Hans Vestberg told the Financial Times that Telcordia is a "perfect fit" with the company, given that both are focused on providing operational and business support systems to telcos. Vestberg added that such technology should be a "growth engine" for Ericsson as the number of smartphones and tablets continue to grow.
Ericsson maintains the market for software and systems integration was worth $35 billion in 2010, with a CAGR of between 6 and 8 per cent over the next three years. Telcordia generated $739 million in revenue in its fiscal 2010, with 75 per cent of its sales in the US market.
However, Informa Telecoms & Media analyst, Peter Dykes, suggested in a blog post that the purchase by Ericsson was not unexpected given that Telcordia's owners, Providence Equity Partners and Warburg Pincus, announced earlier this year they were looking for a buyer. Sounding a note of warning, Dykes believes that Ericsson might encounter resistance when selling the US-focused Telcordia products to operators around the world who already have established relationships with other OSS/BSS providers.
Dykes claims that the sale has confirmed that the heavyweights in the OSS/BSS sector will likely be dominated by telecoms firms and not IT vendors. He said IT vendors had been positioning themselves to lead the charge into providing next-generation OSS/BSS systems but are now seen as losing out as telecoms equipment suppliers continue to make acquisitions.
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