Networking giants Cisco Systems and Ericsson AB have inked an alliance in an effort to compete with rivals such as the China-based Huawei Technologies. The partnership comes at a time when global markets are experiencing a rapid shift are far as innovation and products are concerned.

According to the deal announced on 9 November, Ericsson, which is a leader in wireless equipment and Cisco, which currently dominates the Internet gear market, together will integrate existing equipment. While this would require both companies to merge a few of its sales and consulting efforts, going forward, it may jointly form a completely new hardware and services division.

The alliance apart from bringing benefits to both companies and customers more quickly will add $1bn (£662m, €930m) or more in annual sales for each company by 2018. The reason for the alliance are common threats that both companies face, including:

  • A slowdown in the smartphone market. This has affected the revenues of telecom companies who are its biggest clients.
  • Increased competition from Huawei.

The Chinese company overtook Ericsson in the mobile infrastructure equipment market according to analysts at Dell'Oro Group. Cisco too faces tough competition from Huawei in the global router business, in which the Chinese peer has a 13% stake.

Though much lesser than the 49% it holds, in China however, Huawei has leapfrogged to the top position in this space, leaving the American company behind.

The deal, which was arrived at after 13 months of negotiations between the two companies, will allow them to face their common threats and would let Ericsson retain its position as the world's biggest telecom-equipment supplier by sales. Cisco too will benefit as it could take advantage of the Swedish company's 65,000 service personnel, to sell its networking gear.

Alcatel-Lucent SA takeover by Nokia

According to Pierre Ferragu, an analyst at Sanford C. Bernstein, Nokia, post the deal will have an expertise in both wireless and internet technologies, a combination which Cisco and Ericsson hope to attain through this alliance.