Ericsson Looks for a Home in the Cloud

The company shifts away from its waning hardware market

A decade ago, telephone pioneer Ericsson managed to reinvent itself as a maker of network equipment, selling pricey hardware to telecommunications companies struggling to keep up with mobile subscription growth. Suddenly, the Swedish company was more relevant than it had been since the 1920s. Now, with its biggest customers slowing the pace of their expansion or shifting more of their data crunching to the cloud, Ericsson is trying to follow.

About 40 percent of the world’s wireless calls and data move through Ericsson’s network hardware. The company, with a market valuation of $39 billion, sells to and often operates the equipment for carriers including AT&T and Vodafone. Ericsson’s revenue fell in three of its past five quarters, and analysts are projecting that the company will see a third straight year with little or no sales growth. Globally, cloud-infrastructure services were a $4 billion business in the second quarter—up 50 percent from the same period a year earlier, according to analyst Synergy Research Group.

Chief Executive Officer Hans Vestberg is betting that the company’s relationships with carriers will help him sell Ericsson’s clients on cloud software and services that store data for their apps and help update programs across a network. “We’re in an enormous transition,” says Ericsson Chief Technology Officer Ulf Ewaldsson. A year ago, he and Vestberg hired Jason Hoffman, the co-founder of cloud provider Joyent, to make the case to carriers and other businesses that they should choose Ericsson over companies with a head start in cloud services, such as IBM, Hewlett-Packard, and Microsoft. “We realized we couldn’t transform in the way needed without getting a lot of new talent on board,” Ewaldsson says.

Since Hoffman helped start Ericsson’s cloud division in March, the company has been making acquisitions and forming partnerships on its way toward a product designed to meet carriers’ cloud needs. In September, Hoffman struck a deal with real-time security startup Guardtime to put Guardtime’s subscription-based security programs on Ericsson’s cloud servers. Later that month, Ericsson bought a majority stake in Apcera, a cloud startup that helps companies update and secure software across their networks all at once, rather than having to roll it out in each office individually. (The companies wouldn’t disclose terms.)

Using the cloud to simplify software management isn’t an idea that’s unique to Ericsson, but Hoffman says the company’s experience working closely with wireless carriers makes it easier to figure out how to manage their computing resources. On Nov. 3, AT&T and Japanese carrier NTT Docomo each announced that they were testing networkwide software updates using Ericsson’s cloud services. Volvo is incorporating Ericsson’s technology into the touchscreens of its Internet-connected cars.

Hoffman, who has a doctorate in molecular pathology from the University of California at San Diego, started thinking about the potential of cloud computing in the 1990s while researching breast, skin, and cervical cancer at what’s now the Sanford-Burnham Medical Research Institute. The computers he was using struggled to perform the high-end image analysis he needed. “When you’re trying to do cutting-edge science like that, you have to create cutting-edge technology,” he says. To fill the void he saw in the market, he co-founded Joyent, then called TextDrive, in 2004 with Canadian programmer and typographer Dean Allen. Hoffman became the early cloud company’s chief operating officer, then interim CEO and CTO, before jumping to Ericsson.

It won’t be easy for Ericsson to push its way into the cloud, says Roger Kay, president of researcher Endpoint Technologies. The Swedish company doesn’t have much name recognition or many customer relationships beyond the network equipment market, Kay says, and to win enough business to justify the needed investment, “they’ll have to raise their profile.”

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