TD Securities analyst Chris Umiastowski has a new report on the telecom equipment market entitled "Who’s Next to Get Hitched?". He works on the assumption Nortel will attempt to stay independent rather than seeking out a mega-merge a la Alcatel-Lucent. Instead, Umiastowski focuses on a key M&A market – GSM/UMTS – where he believes a lot of strategic maneuvering could happen. For Nortel, the GSM/UMTS market is a fish or cut bait situation. Umiastowski believes Nortel must get bigger or get out of the business. The most obvious way to get bigger is buying Siemens’ communications business, which is apparently on the block. This will vault Nortel from #5 in GSM/UMTS to #2. The problem, however, is the Siemens business could also attract interesting from Motorola and Nokia. Umiastowski believes if a bidding war happens, Nortel will likely not be able to play if the price gets higher than 1.5 sales. Buying the Siemens business would be a huge strategic move for Nortel and CEO Mike Zafirovski, who has a huge amount of work to do to re-invent and reinvigorate the company in the wake of an accounting scandal and an increasingly competitive landscape.
Interesting if Nortel go for Siemens mobile. Any idea what 1.5 sales is in a dollar value Mark?
Darwin
From a UMTS perspective a Siemens -Nortel combo could be profitable. Siemens has several contracts that are fulfilled on the base station side with product from NEC. Cutting out NEC would result in much greater volume for the Nortel RAN. Of course, in the process you would expect that some competitors would take advantage of the situation to poach customers. If the SI-NT combo means changing product, why stick with the vendor?
On the GSM side, the benefits are more difficult to discern. This is a mature market, with large deployed networks, without new customers, and a sharply declining cost curve. Combining the two product lines would be very difficult. The most likely scenario would be capping one product line and ensuring that all extensions go to the survivor. Again this is a recipe to open the acquired customer base to the competition.
In any scenario, I would watch Huawei in particular. They are the cost leaders, they are hungry, and their growth targets could definitely use the opportunities opened by messing with incumbent vendors’ product lines.
Nortel’s Dance Partners
TD Securities analyst Chris Umiastowski has a new report on the telecom equipment market entitled "Who’s Next to Get Hitched?". He works on the assumption Nortel will attempt to stay independent rather than seeking out a mega-merge a la Alcatel-Lucent. Instead, Umiastowski focuses on a key M&A market – GSM/UMTS – where he believes a lot of strategic maneuvering could happen. For Nortel, the GSM/UMTS market is a fish or cut bait situation. Umiastowski believes Nortel must get bigger or get out of the business. The most obvious way to get bigger is buying Siemens’ communications business, which is apparently on the block. This will vault Nortel from #5 in GSM/UMTS to #2. The problem, however, is the Siemens business could also attract interesting from Motorola and Nokia. Umiastowski believes if a bidding war happens, Nortel will likely not be able to play if the price gets higher than 1.5 sales. Buying the Siemens business would be a huge strategic move for Nortel and CEO Mike Zafirovski, who has a huge amount of work to do to re-invent and reinvigorate the company in the wake of an accounting scandal and an increasingly competitive landscape.