We are on the verge of a wave of consolidation in the networking sector. There are several big companies on the prowl, and several small companies who would do well to combine, given the synergies that that would create.
The Sharks
Lucent
The CFO has announced, a week or two back, that Lucent is in talks with 6 or 8 companies for acquisitions or partnerships.
CSCO
It has announced that there will be about a dozen acquisitions in 1999.
Intel
The bottleneck for this company's processors has become network bandwidth. Look for INTC to make acquisitions in the networking sector. With its cash horde, and with its stock now over 100, at least one of the deals could be sizeable. Recently, of course, INTC snared SHVA for $6.
Nortel
Still digesting Bay, a relatively depressed stock price and some Canadian conservatism. Still, this company will do what is necessary to maintain and grow its presence in the networking arena.
Alcatel
It has announced that it will be making acquisitions.
Ascend
I don't think ASND will be bought by Lucent (I haven't analyzed other possibilities, such as Nortel, but it's stock is down). Rather, I think ASND will be a buyer in its own right as it seeks to establish and maintain a presence among the bigger players.
Compaq
Challenged by its digestion of DEC and by the departure of Alan Lutz from its networking group (who left to head-up NN), CPQ still has a stated desire to expand in the networking area. The common rumor for this company is a CS acquisition.
The Fish
XYLN, CMTO, LEVL, NN, CIEN, COMS, FORE, CS, MRVC, AFCI, PAIR, ADI and many others. I've only looked at a few.
XYLN, for example, seems a prime candidate if one wants to challenge CSCO in enterprise switching. With sales of $300MM this year and $450MM in FY99, I'm guessing it can be had for about $1.5B to $2B, a middle-sized acquisition.
NN, much cheaper than ASND (but with a DWDM affiliate in a hot DWDM market) is another fish, either for acquisition or partnership.
I'm sure there are many more fish in the sea. But my point is not to name the fish, but only to note that fishing season is about to begin.
Gary Korn
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