Aastra Technologies picks up Ericsson’s enterprise unit, expands beyond traditional market

Aastra Technologies Ltd.'s acquisition of Ericsson's enterprise communication business is a deal that makes sense for both parties, given Ericsson's need to focus on its core business, and Aastra's desire to expand its footprint in new markets. Aastra, a communications networking company headquartered in Concord ON, will pick up the Ericsson unit for $103 million. Aastra's CFO Allan Brett tells Network Letter that this deal helps the company expand beyond its legacy stronghold of Western Europe and extends its portfolio across all market segments. "Before , our dominant reach was in Western Europe. This deal now puts us in Eastern Europe, Asia, Africa, Australia, and South America," he says. Aastra will add 630 employees in more than 30 countries. Of these, 360 employees will be in Sweden. The purchase includes the existing agreements with Ericsson's indirect sales channel, as well as Ericsson's 100,000 clients and 37 million lines. The Ontario company is now considered the sixth largest PBX provider in the world. "We are selling the complete enterprise portfolio," says Urban Gillström, president of Ericsson Enterprise, in conversation with Network Letter. "This includes PBX terminals and applications." Enterprise communications was a relatively small part of Ericsson's business. The company says the sale is a strategic divestment that allows them to direct more attention, and resources, toward the operator channel. "We'll be looking for more network partners," says Gillström, "and focusing on carriers and service providers." The announcement appeared strategically timed to coincide with Aastra's 2007 fourth-quarter and year-end financial results. The company reported over $600 million in sales in 2007, essentially flat over the previous year. Net earnings were $35.8 million in 2007, compared to $42.0 million in 2006. The company also reported that an additional working capital requirement of $57 million would bring the total acquisition cost to $160 million. The enterprise communications business can be tough slogging these days, as Aastra's financials indicate. The PBX market is essentially flat, and in order to maintain profitability and stay competitive companies are either consolidating or being consolidated. As evidence, Nokia-Siemens has taken itself out of the enterprise business. However, Aastra will have little difficulty managing the takeover; the purchase will be financed through operating cash and existing bank credit. Besides acquiring Ericsson's legacy PBX system and an IP-PBX call manager for large businesses (branded as MX-ONE), Aastra will also pick up personnel on the development side, thus deepening its R&D capabilities, something that has been lacking in the past. In a research note, Gartner Inc. has advised Aastra customers to remain in place, "especially for mobility-centric solutions, if Aastra creates a focused business unit." Although Gartner also raises concerns regarding R&D, this has never been Aastra's strong point, and the Ericsson acquisition will only strengthen Aastra's capabilities on this front. MX-ONE is a strong product, and Aastra is unlikely to re-brand as it steps up to the plate and faces competition from the likes of Nortel Networks, Alcatel-Lucent, and Cisco Systems. The market is too tight to start fiddling with the dials. "We see the market as being very competitive," says Aastra's Brett. "Prices are not increasing. We have to look for increased operating efficiencies. This deal will scale us to be a meaningful player for years to come." Increasingly, the real elephant in the room is Cisco, but Aastra's strategy will be to stick to its knitting and not try to be all things to all people. "We will stay focused on the enterprise side," says Brett. "A company like Cisco will try and bring in a lot of data gear, but we come from a voice background, and understand the needs of that market," he says, adding that Aastra is well-positioned to deliver on the heightened demand for unified communications. When the deal closes in April Aastra will have 2,400 employees, of which 200 will be in Canada. The sales model, in which the majority of deals are indirect through channel partners, will not change.

Aastra Technologies picks up Ericsson’s enterprise unit, expands beyond traditional market

News | March 10, 2008

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