Citi: Ericsson bid for Ciena, Juniper isn't going to happen

If Ericsson (NASDAQ: ERIC) were to purchase Ciena or Juniper, the argument is that it could bolster its lagging wireline portfolio, but one Citigroup analyst says that neither deal is likely to happen.

Citigroup's Ehud Gelblum disputes the premise of a Bloomberg article that surmised that Ericsson is considering doing an acquisition to stay competitive as its rival Nokia (NYSE:NOK) snaps up Alcatel-Lucent (NYSE: ALU).

With an acquisition of either Juniper or Ciena, a vendor that it established a partnership with last year to pursue new optical and SDN opportunities, Ericsson could bolster its own wireline portfolio. This could enable it to more effectively compete against a larger Nokia, which would have a larger optical and IP routing portfolio.

"We disagree with the premise of the article and after speaking with the company and doing some thinking of our own, we do not believe there has been any change to ERIC's thinking or approach to M&A," Gelblum said in a Barron's article.

Apart from its annual global meeting held in June where Ericsson talks about its strategy and budgeting process, Gelblum added that there is no special meeting of Ericsson's top management team.

In addition, Ericsson has released two new IP routing products, including the IP router 6000 series HDS8000 rack scale servers. If it were to move on buying Juniper, it would admit defeat of its own routing and switching strategy.

"We believe ERIC would be signaling defeat of these products before they even launched were it to acquire Juniper as why would a carrier purchase the new Ericsson products knowing they may no longer be supported in a few years once a potential Juniper acquisition closes," Gelblum said. "We therefore see an acquisition of Juniper as Ericsson shooting itself in the foot for a solid year or longer in one of its key growth areas. It just feels way too early to pass the smell test."

Fellow financial analyst Simon Leopold of Raymond James agreed that while they doubt Ericsson will buy either company, if a sale were to occur Juniper would be the more relevant target.

"We believe Ericsson's R&D efforts are focused on evolving toward a more software-centric business, as well as higher-value services and routing," Leopold said. "We also think it strives to evolve its vertical mix away from wireless telcos. Juniper and Ciena are mentioned most often as targets; we doubt either happens, but would consider Juniper more likely and logical."

For more:
- Barron's has this article

Editor's Corner: Could the Nokia/Alcatel-Lucent deal drive Ericsson to broaden its portfolio with a Ciena, Infinera or Juniper buy?

Related articles:
Report: Ciena, Juniper could become acquisition targets for Ericsson
Nokia's $16.6B bid for Alcatel-Lucent puts company back into the wireline game
Nokia, Alcatel-Lucent confirm merger talks

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