Ericsson Chase Cisco

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Ericsson is buying Redback Networks, a broadbank data routing company, for $2.1 billion. The total market for IP edge routing, Redback’s strenth, is forecast to be $5 billion by 2009. Redback’s big competitors are Cisco and Juniper.

Redback did not come cheap. Before the offer, which is 18% above the current share price, Redback traded at 5.9 times revenue. That is above above 5.6 times for Cisco and 5.1 times for Juniper. And, Redback is the smallest of the companie.

Redback said it did the deal because its size often concerned customers. Two customers, AT&T and BellSouth, account for a large portion of the company’s revenue.

The merger of Alcatel and Lucent has recently created another large company in this segment. Cisco is obviously the largest with sales of over $28 billion and a market cap of $168 billion. Could it strenthen its position by acquiring Juniper. Perhaps. With revenue of $2 billion, Juniper may need a partner.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.