Wednesday, November 23, 2005

Analysts Doubt Ericsson/UTStarcom Deal

Light Reading writes about rumors in the Chinese press that Ericsson is considering acquiring UTStarcom after Ericsson CEO Carl-Henric Svanberg "reportedly said Friday in Guangzhou that his company is engaged in talks to acquire a Chinese company. According to the article, "Ericsson has expressed an interest in moving deeper into the network infrastructure business in China."

American Technology Research analyst Albert Lin said, "I don’t know how much credibility to put into that. The last time I talked to the Ericsson guys, they said the biggest problem is not UTStarcom’s technology. The biggest problem is: How do you integrate what they used to do [the PAS business]? Ericsson got out of the handset business because the revenues were so unpredictable from quarter to quarter. They liked the predictability of infrastructure sales."

Joe Noel at Pacific Growth Equities also noted another reason why a deal for UTStarcom may not be in the cards: an ongoing SEC investigation. Noel said, "It’s not very likely that a big, reliable company like Ericsson would go after a company that has an investigation like that going on."

Both analysts agreed that UTStarcom's IPTV platform was attractive. Ericsson officials "are not interested in the PAS business," Noel opined.

Lin thought IP video might be a potential hedge for Ericsson. He said, "UMTS sales were growing so well, but they are looking at slowing growth for that in the future. They may want to lower their dependence on that and get more involved with wireline infrastructure. That’s part of why they want to get involved with IP video."