News Story BAY - NYSE
By Joelle Tessler
05-13-98 03:23 PM
NEW YORK (Dow Jones)--As the lines between voice and data communication
continue to blur, many industry experts are predicting a wave of consolidation
among telecommunications-equipment makers and data-networking companies.
Acquisition rumors have been sweeping the computer-networking industry for
months, with just about every major networking name other than Cisco Systems
Inc. (CSCO) mentioned at some point as a potential takeover target for a big
telecom-equipment company.
The two industries are likely to converge in the years ahead through mergers,
analysts believe, as the big voice equipment makers eye the faster-growing
computer networking industry and as they try to protect their core businesses
as more and more voice traffic travels over data networks.
"The [data] networking industry ... was ignored by the big telecom-equipment
companies," said Volpe Brown & Whelan Co. analyst Amar Senan. "But now data
networking is big, and they can't ignore it anymore."
While the big voice equipment players are likely to develop some data
networking products in house, Jeffrey Pittsburg, a partner at Goldis-Pittsburg
Institutional Services, believes they will get a lot of technology through
acquisitions because "it's much faster."
"It's not a question of money," Pittsburg said. "It's a question of time. ...
The Internet is much bigger than they had expected. ... They don't have a long
time frame to develop all of this technology."
The latest takeover rumors in the networking sector have swirled around Bay
Networks Inc. (BAY). Lucent Technologies Inc. (LU), Alcatel Alsthom (ALA),
Northern Telecom Ltd. (NT), L.M. Ericsson Telephone Co. (ERICY) and Siemens AG. have been named as potential suitors.
A month or two back, the rumor was that Tellabs Inc. (TLAB) would buy Fore
Systems Inc. (FORE). And Ascend Communications Inc. (ASND) and Cabletron
Systems Inc. (CS) have also been named as likely targets.
Industry watchers also expect to see partnerships between major players in
the two businesses. For instance, while Cisco is too expensive for most
would-be suitors and Northern Telecom isn't for sale since it is partly owned
by the Canadian government, the industry has long suspected that the two
companies could enter into some sort of major alliance, said Sanford C.
Bernstein & Co. analyst Paul Sagawa.
This would in turn put pressure on Lucent to step up its push into the data
networking market, Sagawa said. Lucent has been actively building up its
presence in this business through internal development and acquisitions,
although the company is currently prohibited from transacting pooling of
interest deals because the company was spun off from AT&T Corp. (T). This
two-year moratorium will expire in October, giving Lucent more flexibility to
make acquisitions, he said.
"It would be a chain reaction because they want to have a level playing
field," Pittsburg said.
The telecom equipment makers are interested in the data networkers in large
part because they are in a much faster-growing business, analysts agreed.
(MORE) DOW JONES NEWS 05-13-98
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