Ciena, Andrew deals could be 'tip of the iceberg'
Reuters, Feb 20 2002 Brought to you by:
CHICAGO (Reuters) - Telecommunications firms are burning up the phone lines again as acquisitions this week by equipment makers Ciena Corp. and Andrew Corp. showed that deals have become a hot topic again in the battered industry, analysts and industry officials said.
The urge to merge among telecom carriers and equipment vendors slowed last year, but this week's deals and comments by Motorola Inc. -- that it wants to boost its share of the wireless telephone market by buying a smaller rival -- reflect a market ripe for consolidation.
"These deals are the tip of the iceberg," UBS Warburg telecom equipment analyst Nikos Theodosopoulos said. "Over the next 18 months we would expect ongoing consolidation."
With the sluggish economy and spending cuts by telephone carriers like Qwest Communications International Inc. , deals will only increase, analysts said. Companies are also pushing to cut costs.
Throw in recent bankruptcies by high-speed communications network operator Global Crossing Ltd. , local and long-distance company McLeodUSA Inc. and satellite telephone provider Globalstar LP , and even more assets could be available, analysts said.
"There are still a lot of companies out there that are not going to be able to continue servicing their debt and they'll probably file for Chapter 11 (bankruptcy protection), but at the same time they still have network assets worth something," said James Glen, telecom economist with consulting firm Economy.com.
CIENA DEAL RAISES STAKES
Optical networking firm Ciena agreed to buy ONI Systems Corp. Monday for $900 million, while Andrew said Tuesday it would purchase privately held Celiant Corp., a maker of wireless telecom gear, for $470 million.
"If you look at the industry generally and given the challenges it's going through, you have to believe in consolidation both at the carrier level and the vendor level," Ciena Chief Executive Gary Smith told Reuters.
A desire to obtain long-term access to stable revenue streams is also driving consolidation in the sector, some industry investment bankers said.
Ciena's deal has raised the stakes for several optical networking firms, analysts said. Among those in play could be Sonus Networks Inc. , Sycamore Networks Inc. , Corvis Corp. , Germany's Adva AG , Extreme Networks Inc. , Foundry Networks Inc. , Britain's Marconi Plc and Tellium Inc.
"There are better values in the marketplace today than there were a couple of years ago," Andrew Chief Executive Floyd English told Reuters. "The companies with the strong financial capabilities are looking at that and looking at ways of accelerating growth and diversification."
Leading the list of potential buyers, of course, is Cisco Systems Inc. , as the world's No. 1 maker of gear that directs traffic on the Internet sits atop a cash pile of $21 billion, analysts said.
Other possibilities include Ciena and Tellabs Inc. , both sporting strong balance sheets, as well as Juniper Networks Inc. , France's Alcatel
and struggling telecom equipment giants Nortel Networks Corp. and Lucent Technologies Inc. , analysts said.
The comments by Motorola, the world's No. 2 wireless phone maker behind Finland's Nokia , were made at an industry conference in France. A top wireless phone executive said if Motorola can add six percentage points of market share by acquisition, then why not?
The Motorola executive did not identify potential targets, saying only that the Chicago area-based firm was talking to everyone. Germany's Siemens AG has been mentioned before, but it said Wednesday it expects to almost double its global market share to 15 percent over the next three years.
Smaller players like Alcatel and France's Sagem , as well as Dutch electronics giant Philips Electronics are expected to exit handset manufacturing or link up with rivals to survive.
SIZE MATTERS
"People look out and don't see things improving, so they know the only way to get things better is improve their cost base and that's going to lead to mergers," said Kurt Lauber, analyst with American Express Financial Advisors. "They see the writing on the walls."
Other firms may simply look to sell businesses they do not consider part of their core operations, as Lucent did by agreeing to sell its fiber-optic unit to Japan's Furukawa Electric Co. Ltd.
Size also matters as carriers want end-to-end solutions, or one-stop shopping, from suppliers, analysts said.
"Being a medium-sized operator ain't good enough because you don't have a big enough customer base to leverage the economies of scale," said Mike Cansfield, principal consultant with British technology consulting firm Ovum.
(Additional reporting by Paul de Bendern in Cannes and Tom Johnson in New York)
^ REUTERS@ |
