Ericsson and Redback to Grow Silicon Valley-based IP Unit

| Feb 7, 2008 | Telecom Infrastructure | Competitive Update

| Analyst: Gen Hunt

Current Perspective: Positive
Vendor Importance: Very High
Market Impact: High

Event Summary

February 5, 2008 – Redback Networks, an Ericsson company, announced new leadership changes and the creation of a larger product unit, ”Product Area Packet Networks”, that will merge Ericsson’s R&D resources for fixed and mobile IP products and triple its R&D investments in Silicon Valley. The new unit will be headed by Georges Antoun, and Kevin DeNuccio, Redback’s current CEO, will assume the role of vice chairman and new strategy officer to help drive Ericsson's larger all-IP strategy.

Analytical Summary

• Current Perspective: Positive on Ericsson and Redback’s announced move to bolster its investment in R&D for fixed and mobile IP products with its new “Product Area Packet Networks” unit. The announcement follows the company’s earlier moves where it publicly announced that it would establish its R&D center in San Jose, California, and that it would add additional resources and invest up to $350M in new product development at its new four-building Silicon Valley campus. In addition to Redback, assets from the recent Entrisphere and TANDBERG acquisitions will also be collocated at the campus. Ericsson has recognized the criticality of developing next generation IP platforms and has made consistent moves to ramp up its capabilities since the acquisition of Redback was announced in December 2006.

• Vendor Importance: Very high to Redback and Ericsson, since the SmartEdge series products and their derivative technologies form the basis of the company’s future wireline and wireless IP-based solutions. Having invested over USD2.1B to acquire Redback, and having placed its IP future on existing products and new developments, Ericsson needs to execute on the plans it has set in motion. The move also includes executive level changes aimed at further integrating Redback technology and innovations into the core of Ericsson’s strategic planning and execution processes. The move also brings Ericsson’s west coast umbrella operations under one roof to set the stage for further organizational and technical integration.

• Market Impact: High on multiple markets within the telecom infrastructure market segments. The recent investment moves executed by Ericsson should remove any doubt that the company is committed to insuring that its packet networks product unit delivers on multiple market initiatives in the carrier Ethernet market segment, such as multi-service edge routing, Ethernet access and aggregation, and mobile backhaul. The move to establish the “Product Area Packet Networks” should also form a solid basis from which to develop future products to satisfy the requirements of all-IP network solutions--which would include IPTV and mobile broadband.

Recommended Competitor Actions

• Alcatel-Lucent needs to highlight the strengths of its IP router portfolio, which includes wireline and wireless solutions that have gained significant momentum with deployments at over 190 service providers, evidenced by its number two market share position in the service provider edge router market (i.e., 17.9% during the first three quarters of 2007 according to SRG). Alcatel-Lucent should also contrast the success of its Triple Play Service Delivery Architecture (TPSDA) and its Mobile Evolution Transport Architecture (META) against Ericsson’s FSB proposition.

• Cisco should highlight the strength of its IP NGN portfolio for wireline and wireless networks, as well as its leading 54.8% market share position in the service provider edge router market during the first three quarters of 2007 (according to SRG). Cisco should also highlight the recent enhancements to the 7600 edge router, such as support for SBC, content delivery, and security, as well as its Video 2.0 portfolio to provide assured delivery of video services.

• Juniper should highlight the long-running success it has had with its J- and M-Series router platforms and its broadband service router platforms (ERX and E320). Juniper should also highlight the recent extensions to its service deployment platform (SDX300), PSDP and Plug N Play MPLS, which facilitate rapid service activation. Juniper can point to its strong partnerships with Tier 1 vendors such as Ericsson and Nokia Siemens Networks as evidence of its market success.

• Nokia Siemens Networks (NSN) should highlight the progress it has made in its joint venture this past year and its proven ability to deliver end-to-end wireline and wireless next generation network solutions. NSN should also point out that it offers a best-of-breed solution based on its own technologies and industry leading IP core and edge routers from leading vendors such as Cisco and Juniper.

CLIENTS ONLY

Competitive Positives and Concerns

Recommended Vendor Actions

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