The consolidation continues…

 

Swedish telecom gear-maker Ericsson is buying data networking equipment vendor Redback Networks Inc. for $2.1 billion in cash, the companies announced late Tuesday. The deal will be internally funded by Ericsson. Redback will maintain its current leadership team and will operate as a wholly owned subsidiary of Ericsson.

 

Following on the heels of the recently completed merger between Alcatel and Lucent, which formed the world’s largest telecom equipment maker, this new deal marks further consolidation in the telecom industry.

 

It appears that Ericsson is positioning itself to better compete with Alcatel-Lucent and Nortel, among others. Redback is an up and coming player in the edge router market, which is being driven by new IP communications applications such as IPTV and VoIP. While the company was founded in the late 90’s, a recent Dell’Oro research report had Redback growing faster in the edge router space than its larger competitors Cisco and Juniper. Redback had year over year growth of 114%.

 

According to the Dell’Oro Group report published in August, worldwide sales of service provider edge routers increased 30 percent year on year. Shin Umeda, Principal Analyst of Router research at Dell’Oro Group wrote, “Service Providers are driving strong demand for edge routers as they gear their networks for the next generation of broadband services such as IPTV and VoIP. Cisco and Juniper remain the market leaders, but Alcatel and Redback are gaining ground with strong product offerings optimized for these new services.”