Standard & Poor’s today downgraded its outlook for Ericsson from positive to stable, after the Swedish telecom company announced on Tuesday it will buy 75 percent of Marconi Corp. plc’s telecommunications business for $2.16 billion.
Ericsson is going after several Marconi divisions, including its optical networking business; the broadband and fixed radio access network business, its softswitch business; the data networking equipment and services businesses; certain telecommunications services activities; as well as the Marconi trademark, associated brand names and intellectual property rights.
"Although Standard & Poor's acknowledges the strategic rationale for the Marconi transaction in the context of the medium-to-long-term expected developments in the industry, we note that the assets to be acquired will initially weaken Ericsson's earnings and cash flow generation and significantly increase its exposure to the weak wireline telecoms equipment sector," noted credit analyst Leandro De Torres in a news release.
Ericsson, meanwhile, says the transaction will help it tackle the mobile and fixed broadband access arenas. “As fixed and mobile services converge, our customers will substantially benefit from this powerful combination,” says Carl-Henric Svanberg, president and CEO of Ericsson.
Ericsson says Marconi's transmission products – especially its optical
Systems – will be especially valuable, since they will combine with Ericsson's microwave radio business and worldwide sales organization.
Ovum analysts say buying some of Marconi’s assets means Ericsson bolsters its product line in areas of strategic importance for mobile and convergent network operators.
“And it is not only about the fixed business,” write Michael Philpott, principal analyst, and Jean-Charles Doineau, research director, in a research note. “Marconi was the No. 2 world player in optical transmission (its products were OEMed by Ericsson for years). Buying this product portfolio allows Ericsson to complement its wireless transmission portfolio with transmission solutions that are able to be really cost effective when both voice and data traffic are to be collected from the access network. This is a very smart move when we are talking about 1Mbit/s HSDPA access in UMTS networks.”
