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Ericsson in major US broadband deal

Swedish telecoms equipment maker Ericsson has agreed to buy American company Redback Networks for $2.1 billion.

Redback, based in San Jose, California, makes routers used to direct data over broadband networks. The deal is expected to be completed in early 2007. Redback’s management team will stay in place, and the company will operate as a wholly owned subsidiary of Ericsson.

Ericsson CEO Carl-Henric Svanberg said in a statement the agreement “accelerates Ericsson’s ambition to build leadership in the fast growing broadband and IP services market.”

Redback has about 800 employees, and its Chief Executive Officer Kevin DeNuccio said no layoffs were planned.

“This is not about cost synergies, this is about growth,” he said.

By comparison, Ericsson has about 56,000 employees and a market capitalization of about $64.5 billion, compared with Redback’s market cap of about $1.5 billion.

DeNuccio said the deal will allow both companies to capitalize on the need of Internet providers and telecom companies to revamp their networks to handle the massive bandwidth requirements of those services.

“It’s a huge market for the routing technology necessary to build out these networks, and it’s really video driving the need for the infrastructure changes,” he said in an interview. “I don’t view this as an ending, I view it as a perfect match of the key technologies that will be necessary in the future.”

Ericsson is paying about $25 per Redback share, an 18 percent premium over Redback’s closing price of $21.17 on Tuesday on the Nasdaq Stock Market.

The deal was announced after the market closed, and Redback shares gained more than 17 percent, or $3.63, in after-hours trading to $24.80.

Ericsson shares were up 4 cents to $40.66 in after-hours trading on the Nasdaq.

Analysts said both companies stand to profit from the deal.

Redback can tap into Ericsson’s vast resources and customer base to help increase market share. Meanwhile, Ericsson gets to own and sell a crucial piece of technology that service providers need to intelligently differentiate between types of data and route them appropriately in increasingly complex networks.

In the latest quarter, Redback held about 6 percent of the worldwide market for Internet Protocol edge routers, according to Infonetics Research.

Redback ranked fourth on the list behind much larger rival Cisco Systems Inc., which led the pack with 51 percent, and Alcatel-Lucent and Juniper Networks Inc., which both were in the mid-teens.

The total market for that type of equipment is expected to be around $4.1 billion for 2006 and is forecast to grow to $5.8 billion by 2009, according to Infonetics.

“Size does matter in this industry, and I think this is a good match for both companies,” said Michael Howard, an analyst with Infonetics. “Certainly it’s a good match for Redback because Ericsson is huge. And for Ericsson, it’s smart for them to own the IP edge routing technology themselves.”

SWEDEN AND UKRAINE

Ericsson suspends all Russia operations indefinitely

Swedish network equipment maker Ericsson said Monday that it was suspending all of its Russian operations over the war in Ukraine for the foreseeable future.

Ericsson suspends all Russia operations indefinitely

The telecom giant already announced in late February that it would stop all deliveries to Russia following Moscow’s February 24 invasion of Ukraine.

“In the light of recent events and of European Union sanctions, the company will now suspend its affected business with customers in Russia indefinitely,” Ericsson said in a statement.

The company added that it was “engaging with customers and partners regarding the indefinite suspension of the affected business.”

“The priority is to focus on the safety and well-being of Ericsson employees in Russia and they will be placed on paid leave,” it said.

READ ALSO: How has Sweden responded to Putin’s war in Ukraine so far?

Hundreds of Western firms ranging from Ikea to Coca-Cola, Goldman Sachs and McDonald’s have stopped operations in the country since the invasion, with French banking group Societe Generale announcing Monday it was selling its stake in Russia’s Rosbank.

Ericsson has around 600 employees in Russia, and is a “major supplier to the largest operator MTS and the fourth largest operator Tele2,” a company spokeswoman told AFP, adding that together with Ukraine, Russia accounts for less than two percent of revenue.

As a result, the equipment maker said it would record a provision for 900 million Swedish kronor ($95 million, 87 million euros) for the first quarter of 2022 for “impairment of assets and other exceptional costs,” though no staff redundancy costs were included.
Ericsson is due to publish its first quarter earnings on April 14.

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