November 11, 2015 / 6:39 PM / in 2 years

Cisco, Ericsson reveal bigger ambitions for revenues in new partnership

BARCELONA (Reuters) - The $1 billion in added revenue Cisco (CSCO.O) and Ericsson (ERICb.ST) each expect to see by 2018 from their new partnership to build next-generation networks is just the beginning, top executives said on Wednesday.

The Cisco Systems logo is seen as part of a display at the Microsoft Ignite technology conference in Chicago, Illinois, May 4, 2015. REUTERS/Jim Young

Executives at both Cisco and Ericsson said in an on-stage interview that they expected “at least” $1 billion a-piece during the first phase of the partnership announced this week, but that they had bigger ambitions for the years to come.

Mounting a spirited defense of the deal with investors at the Morgan Stanley TMT conference, Cisco Executive Chairman John Chambers and Ericsson CEO Hans Vestberg said the projected revenue boost only covers their partnership’s first two years.

“We have much higher ambitions,” Vestberg said, referring to revenue targets.

“If we do this right, there are other opportunities as well,” Ericsson’s CEO said of further sales growth ahead.

The deal calls for each company to resell the other’s products, expand the range of services they provide while working to merge mobile and fixed-line networks, they said.

The first stage of the partnership will focus largely on providing equipment and services for telecom network operators aiming to upgrade their existing networks to the cloud, they said.

A second stage will involve selling to corporate enterprises, and a third stage will cover the wider world of network-connected devices in cars, industry, retail and agriculture.

Responding to a fund manager who questioned how big any partnership might be to either company, Chambers said $1 billion in fresh sales would expand Cisco revenues by just 2 percent and add 3 percent to Ericsson’s top line, but these targets have little incremental expense, boosting the profit ratios of both.

“If you are asking if we do Phase 1 right, is there incremental upside? The answer is yes,” Chambers said, adding that the two were being cautious in their predictions.

Vestberg agreed there was also further upside for Ericsson.

“Partnership will be as important over the next two decades as acquisitions were over the past two decades for us,” Chambers said. “If we do it right, our peers wont be able to keep up.”

Reporting by Eric Auchard; Editing by Christoph Steitz and Elaine Hardcastle

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