Ericsson and Cisco Systems are partnering to develop and sell next-generation networks -- Ericsson because it's cheaper than buying in or building the equipment itself, and Cisco because it's quicker than buying Ericsson.
The companies will initially focus on products and services for carriers, combining Ericsson's radio access, mobility and operations support systems products and services with Cisco's IP networking equipment.
Later, they expect to co-develop enterprise mobile networking systems and platforms for the Internet of Things.
Ericsson staff will begin selling Cisco products immediately, and the partnership is expected to bring Ericsson an additional $1 billion in annual revenue by 2018, Ericsson president and CEO Hans Vestberg said Monday in a conference call with analysts.
"The choice was make, buy or partner, and here partner was clearly the only way forward," he said.
Cisco expects a similar revenue boost from the deal. CEO Chuck Robbins said the company sees strategic partnerships as being "as important to our future as we have historically viewed M&A activity -- not to say that we won't do both."
As to the question why partner with Ericsson rather than merge, he said: "It allows us to bring the best from both sides and it allows us to act now."
The companies have been planning the partnership in secret for about a year. Over the weekend, they informed three of their biggest customers -- Vodafone, AT&T and Verizon Communications -- and said the response was positive.
For Ericsson, the gains will come from adding additional IP routing capabilities to its portfolio. "We want to build a network management system that will join it all together," said Vestberg.
As for Cisco, its partly about increasing the size of the sales and support team pushing its products: Ericsson has 65,000 staff worldwide, to Cisco's 11,000, Robbins pointed out.