TechWeb News:The Food Chain:{Heavy on the lemon and tarter sauce?}
June 15, 1998, TechWeb News
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Telecom Vendors In Dangerous Waters
By John T. Mulqueen
Telecommunications equipment vendors were once seen as the big fish drifting placidly in the quietest currents of the communications sea. No longer. Now they are considered sharks and the scent of blood is plainly in the water.
Tellabs Inc.'s $7 billion acquisition bid for Ciena Corp. and Alcatel's $4.1 billion offer for DSC Communications Corp. were the chum that have spurred the feeding frenzy.
Take, for example, a report from UBS Securities LLC analyst Nikos Theodosopoulos, who picks out the next prey. Patrolling the choppy waters are ADC Telecommunications Inc., Adtran Inc., Advanced Fibre Communications Inc., Ascend Communications Inc., Bay Networks, Cabletron, ECI Telecom Ltd., Fore Systems Inc., Newbridge Networks Corp., Nokia, PairGain Technologies Inc., Reltec Corp., 3Com, Xylan Corp. and Tellabs itself.
Dividing the victims into two groups-data networking and telecommunications equipment-Theodosopoulos identifies the companies most likely to be swallowed first as Ascend and Bay Networks, or perhaps Cabletron. Least tasty: Fore, Newbridge, 3Com and Xylan.
Among the telecom equipment fishes, Advanced Fibre looks most appetizing. Reltec and ADC could end up digesting each other, and ECI Telecom may be swallowed. Adtran and PairGain will probably swim away.
Besides the above, the big predators also include Cisco, Lucent Technologies Inc. and Northern Telecom. Tellabs may gobble Advanced Fibre to bulk up and acquire ADC's digital loop carrier to go with its own Sonet and Ciena's DWDM muscle.
But then Cisco may flex its fins over the Tellabs and Ciena combination as a way to fight off Lucent. And Lucent probably wants Ascend's Cascade switch unit, but the traditional Ascend concentrator and LAN switch pieces may be left as a tasty morsel for some other predator, Theodosopoulos says.
Lucent and Nortel need an installed base and a distribution channel if they are to be major players in the enterprise data network market. Bay is the most likely candidate. Too much of 3Com consists of modems and adapter cards-chewy fare but not very nourishing. Fore and Xylan are fat with technology but their price may be too high, Theodosopoulos says.
As big and strong as it is, Lucent won't have all its teeth sharpened until October. That's when it can use pooling accounting and avoid goodwill charges from purchase accounting. Nortel is a Bell Canada subsidiary and can't use pooling under U.S. accounting practices, Theodosopoulos says.
John T. Mulqueen is business editor of InternetWeek.
Copyright r 1998 CMP Media Inc.
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