Ericsson has served the mobile service provider industry well over the years. Most devices connected to its customers’ networks are mobile phones; this, however, is changing. Internet of Things (IoT) devices are entering the fray and provide an avenue for growth, as is the enterprise market. Additionally, Ericsson’s channels have mostly been to operators, at a time when enterprise growth is expected to provide additional cellular industry growth. Ericsson’s portfolio, until the Cradlepoint acquisition, was not particularly well-positioned to benefit from IoT and enterprise growth vectors.
IoT devices come in all shapes and sizes, and they use a number of different connectivity methods, from cellular to Wi-Fi to Bluetooth to LoRa and many others. In 2020, we expect only 16% of IoT and wirelessly connected devices will connect to cellular systems; the rest connect to more popular (and mostly free) connectivity types. We see cellular connections growing in the future, but as a percentage of all IoT and wirelessly connected devices, we expect it will drop to 13% of all such devices five years from now. The reduction in the fraction of IoT and wireless devices connected to cellular is why the “cellular to other” gateway market (Cradlepoint’s main market) makes sense. There are some use cases where cellular backhaul connections to connect Wi-Fi, Bluetooth, Zigbee and others are vital.
With US-based CBRS and European nations’ private enterprise spectrum opening up the opportunity that enterprises will build their own networks – without needing a mobile operator’s help with sub-leasing licensed spectrum – the folks at Ericsson had a choice to make. The choice was to continue selling to and through mobile operators and hope that mobile operators keep their share of enterprise and IoT growth, or to acquire products and distribution channels to access enterprise growth.
Ericsson’s competitors were partnering with Cradlepoint with some success. Recently, Nokia’s enterprise revenues hit about 10% of revenues, in part because it was selling LTE gear to customers in verticals such as utilities, mining & exploration, and logistics & shipping. Many of these customers were using devices such as Cradlepoint’s. Ericsson is now invited to these ongoing dialogues as these networks expand and change.
We would be remiss if we didn’t mention 5G in relation to Cradlepoint. Some enterprises seek a secondary wireless connection to supplement their primary wired broadband connection. Gear such as Cradlepoint routers can serve this need well. In this sense, we can see why Ericsson uses messages such as “Ericsson accelerates 5G for Enterprise with the Cradlepoint acquisition.”
This acquisition is not without controversy, in our view. The Swedes are acquiring a company located in Boise, Idaho, and as such, managing from afar may present challenges. Cradlepoint sells its devices differently (mainly through channels) from how Ericsson sells its gear (mainly direct); these two distribution methods may conflict. Ericsson sold its cell phone business many years ago because it conflicted with its mobile infrastructure business. Similarly, Cradlepoint gear is focused mainly on enterprises, we see a similar conflict because Cradlepoint’s customer base liked its independence from cellular gear-makers. If Ericsson can manage through these challenges, it may enjoy exposure to IoT, enterprise and 5G gateway growth opportunities.