European retreat: Restructuring, slow U.S. market behind Ericsson's decision to move operations

A slow-developing market and an acquisition strategy for the U.S. market were behind Ericsson's decision to dismantle Menlo Park, Calif.-based Ericsson Fiber Access and distribute its operations to other Ericsson facilities.

Ericsson Fiber Access evolved from Raynet, a joint venture between Ericsson and Raychem Corp. to develop fiber systems for telecom, particularly for hybrid fiber/coax (HFC) networks. The joint venture began in 1994, and Ericsson took full control and renamed the company in early 1996.

The project's evolution from a joint venture to a wholly-owned Ericsson subsidiary mirrors a common acquisition strategy in the United States for Ericsson, said Ron Kirchenbauer, human resources vice president for Ericsson.

The dismantling of the company doesn't mean that Ericsson is dropping product lines. The Broadview network management system and RVS HFC lines will move to Ericsson facilities in Italy, while Ericsson Fiber Access' cable operations are being transferred to an Ericsson operation in Germany. Plans are in the works for other minor product lines, and Ericsson is considering an offer for one such product from a group of Ericsson Fiber Access executives.

Ericsson made the decision to transfer the primary product lines to European facilities because the market for Ericsson Fiber Access' products has been much slower than anticipated in the United States, Kirchenbauer said.

"It's a matter of determining where the products should be located with regard to our global strategy," he said. "We acquired this base of technology, and the market has developed much faster outside the United States than in the United States."

The move also coincides with some reductions in operations and layoffs in the same areas outside the United States, Kirchenbauer said. The redistribution of the Menlo Park operation fits into that strategy, as does moving the operations closer to customers.

Ericsson also is "retaining some of that competence" in its U.S. headquarters in Richardson, Texas, Kirchenbauer said, and could eventually establish similar U.S. operations as the market develops.

It's not surprising that Ericsson Fiber Access is being dismantled and moved overseas, said Joel Jakubson, vice president at San Francisco-based Ryan Hankin Kent. Its products are not a good fit for the U.S. market, and a soft year overall for Ericsson's wireline businesses contributed to the decision, he said.

U.S. cable companies have shown relatively little interest in HFC, and those that are interested have turned to less integrated, more piecemeal solutions from companies such as Motorola rather than Ericsson's fully integrated voice/data/video approach, Jakubson said.

"The best use for [HFC] is for greenfields, countries where there is no infrastructure," he said. "And deployment is fairly new, so you're not going to displace anybody right away."