By Dominic Chopping
STOCKHOLM--Ericsson AB on Friday announced the acquisition of Cradlepoint, a U.S.-based wireless networking company, in a $1.1 billion deal.
The acquisition will see Ericsson boost its offering of products that allow companies and public sector services connect to the so-called Internet of Things over fourth- and fifth-generation communication networks.
Although many next-generation 5G technologies are still in development, several countries around the world last year began building networks. However, a report on Friday from the European Round Table for Industry warned that Europe's deployment of 5G networks is "alarmingly slow" compared with the U.S., South Korea and China. The group found that more than half of the European Union's 27 member countries have not yet launched 5G commercial services, while in South Korea and the U.S. initial services were available last year.
Ericsson belongs to the ERT, along with many of Europe's major industrial companies.
The purchase price for Cradlepoint, funded from Ericsson's cash-in-hand, will be paid in full on closing, which is expected before the end of the fourth quarter 2020.
Founded in 2006, Cradlepoint has over 650 employees between its headquarters in Boise, Idaho, a research and development center in Silicon Valley, California, and market offices in the U.K. and Australia.
"With 5G seen as taking cellular networks deeper into enterprise and industrial markets the deal makes sense for Ericsson in our view. It allows them to expand into a fast growing adjacent market which Ericsson believes will be [around] $4bn by 2024," said analysts at Citi.
Cradlepoint's sales for 2019 were 1.2 billion Swedish kronor ($136.1 million) and it had a gross margin of 61%. Ericsson's operating margins are expected to be negatively impacted by approximately 1% in 2021 and 2022, but Cradlepoint is expected to contribute to operating cash-flow starting in 2022.
Ericsson's 2022 group financial targets remain unchanged.
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