Ericsson buys $1.1bn Cradlepoint, puts carriers at heart of expansion strategy
Ericsson has signed off a $1.1 billion deal to purchase US-based Cradlepoint, which provides LTE and 5G wide-area networking (WAN) for the emergency services sector, office and retail spaces, and IoT manufacturing market. The Swedish vendor pitched the deal squarely as a boon for operators, as a growth engine for enterprise 5G sales. The deal is geared to accelerate Cradelpoint’s international expansion beyond its US stronghold via operator partners.
Cradlepoint sells cloud-delivered LTE and 5G wireless network edge solutions to enterprises. Its products are used, notably, to connect emergency vehicles, mobile workers, and IoT devices, and go up against wireless WAN solutions primarily from Cisco and Sierra Wireless. Ericsson said the company has a 25 percent share of wireless WAN in the US; the global market is worth about $1.5 billion, it said, and Cradlepoint will grow its share as the total market tops $4 billion in 2024.
The Idaho-based outfit has about 20,000 customers and a million active LTE subscriptions; the lion’s share is in the US. It claims to work with 75 percent of the top retail brands, 40 percent of Fortune 500 companies, and over 3,500 public safety agencies, with flagship service contracts with the NY Fire Department and the LA Police Department. It has entered the UK with EE, in a deal to connect emergency services and public transport, and Australia with Telstra, in a deal around IoT and edge commuting for enterprises.
Åsa Tamsons, head of business area technologies and new businesses at Ericsson, explained: “It has a very strong 4G portfolio, but also a 5G-ready portfolio, which is already being sold in the US market. This is one of its strengths. It is ahead of competition, both when it comes to the high-performing 4G segment, and also the 5G segment. It has a strong position in the US… [but] there is a lot of room for growth… driven by the adoption of 5G, IoT, and cloud applications. So we will see growth in North America by adding value in existing customer accounts.
“When we look at expansion outside of the US, MNOs will play an important role to open up that market. So we will focus on working closely with MNOs worldwide to bring [these] solutions to market… The international side is [also] a big open opportunity for all of us – a 100-percent upside for us both to go after, together with our operator partners. Cradlepoint is working with 10 service providers around the world; we have relationships with 400.”
About 1,500 reseller partners – including 10 carriers, delivering most of its business – are also on its books. Ericsson repeated that its go-to-market strategy in the enterprise space is with operators, and that the Cradlepoint deal, whatever the sales channel, will drive traffic and revenues for operators in the end. “Cradlepoint has a multi-channel approach, so although service providers may only represent a small percentage of its total partners, they generate a substantial part of the volume,” said Tamsons.
“A lot of its resellers are partners with the operators, as well… But it has a cellular-centric business model, so regardless of channel, it always generates revenue for operators. There is always a revenue stream back to the operator, plus it drives traffic that generates additional revenue streams for service providers, and more demand for their networks. So regardless of the channel, this is a win for the operators, and a win for Ericsson.”
She added: “The vision at Cradlepoint is to drive mobile solutions, to take away cables and fibre, and replace with secure mobile connectivity. Cradlepoint has been one of the key partners to drive adoption of IoT solutions in the 4G market already. First responders, IoT devices, and payment machines that are today connected wirelessly are typically using a Cradlepoint solution, running on LTE. Now they are selling 5G, as well. The strategy is to open-up and drive adoption [of enterprise 5G].”
Asked on a conference call about Ericsson’s shift away from curating bespoke and packaged ‘vertical’ solutions for industry, which the company had made a part of its strategy a couple of years back, towards more horizontally integrated cellular solutions, Börje Ekholm, the company’s president and chief executive at Ericsson, said Cradlepoint will be retained as a standalone business to attack the enterprise space as is doing already.
He commented: “We are used to selling… to a few customers. In the enterprise space, it is almost the opposite – you are selling readily standardised or industrialised solutions to many customers. That’s why we need to make sure we keep the go-to-market organisation in Cradlepoint intact. And that’s something we can build on for other types of enterprise use cases as well. You will see us more today not competing in specific verticals, trying to [deliver] vertical solutions, and instead providing horizionatal connectivity and solutions, which is the bread-and-butter for both Ericsson and Cradlepoint.”
Cradlepoint’s sales for 2019 were about $140 million. The business claims underlying annual growth of 25-30 percent. Ericsson’s operating margins are expected to be negatively impacted by approximately one percent in 2021 and 2022. Ericsson’s 2022 group financial targets are unchanged; the acquisition will deliver a margin boost after 2022, said Ericsson. The deal is expected to close before the year is out.
Cradlepoint, headquartered in Boise, Idaho, has about 650 staff. It has a research and development centre in Silicon Valley, and new market offices in the United Kingdom and Australia. The business will operate as a standalone unit, within Ericsson’s business area technologies unit. The Cradlepoint brand will be retained.
George Mulhern, chief executive and chairman at Cradlepoint, said: “We have led the way in bringing the power of cellular networks and technologies to enterprise and public sector customers – helping them connect beyond the limits of traditional wired WANs. Ericsson with its global 5G leadership is a great match for us and I am very excited to continue to scale and expand our business together.”
Ekholm added: “The acquisition complements our existing offerings and is key to our strategy of helping customers grow the value of their 5G network investments. Ericsson is uniquely positioned to build on Cradlepoint’s leadership position in the wireless edge and the wireless WAN market. Combining the scale of our market access and established relationships with the world’s biggest mobile operators we are making a strong investment to support our customers to grow in this exciting market.”