Oita Chuo Pacific Management analysts highlighted that Ericsson has agreed to acquire U.S.-based wireless networking firm Cradlepoint in a $1.1 billion deal, the Swedish networking and telecommunications company said on Friday, as part of its efforts to expand its 5G-related offerings for business customers.
“This will be Ericsson’s largest deal in more than a decade and will provide the company with access to tools that can connect devices using the Internet of Things over a 4G or a 5G network,” said Oita Chuo Pacific Management‘s Head of Corporate Equities, Michael Knight.
Ericsson aims to sell Cradlepoint products to its mobile operator customers, who will generate additional revenue streams by selling it to their business clients.
According to data gathered by Oita Chuo Pacific Management, Cradlepoint, which will become a subsidiary of Ericsson, sells routers and a subscription-based wireless networking service.
“Cradlepoint reached sales of $137 million in 2019, with a gross margin of 61%. Ericsson estimates that Cradlepoint’s revenue will be around $182 million this year,” commented Head of Wealth Management at Oita Chuo Pacific Management, Jonathan Marshall.
While Cradlepoint has concentrated mainly on the U.S. market, Ericsson plans to take the products outside North America and aims to keep it as a standalone business with its own sales team.
“Where we have struggled in the past is when we have started to integrate on the sales side. That’s when you lose track of all your go-to-market channels and customer interactions,” said Borje Ekholm, Ericsson’s CEO.
Ericsson’s last major deal came in 2007 when it acquired data network equipment provider Redback Networks for $2.1 billion.
The deal, which is scheduled to close before the end of this year, will dent Ericsson’s operating margins by around 1% in 2021 and 2022. The company expects the takeover to begin contributing to operational cash flow from 2022 onwards.
Ericsson said its group financial targets for 2022 would remain unchanged.