Thursday, August 11, 2005

The mega-merger that wasn't

Rumors earlier this week that Cisco was interested in buying Nokia created a lot of excitement, but with denials from both sides, no one is talking about this anymore.

I think that a Cisco/Nokia combine would be terrific, even though executing such a huge merger carries its own risks. The merger would have made sense because the future of networks is wireless and it is just a matter of time before the various wireless and cellular standards converge.

A Cisco/Nokia combine would have been even more significant in its widespread impact on the industry.

Microsoft would definitely have felt threatened, since Nokia also essentially owns the mobile platform and has a large marketshare in Asia.

Apple would also be a loser. Apple knows that once cellphones start becoming mp3 players, along with a few other things, it would have to find some other way to retain users. There is already talk about Apple becoming a VMNO.

Motorola's market is mostly in the US. Its recent Razr has attracted a lot of attention, but in the cellphone world today's cool device is tomorrow's paperweight. To compete with a Cisco/Nokia combine, Motorola would have to go after a real network infrastructure provider. In fact, I think that even without a threat from Cisco, Motorola will ultimately end up buying Lucent. Motorola's cash horde is large (I think it was $15 billion). Apart from Lucent, it could also be eyeing Research In Motion and Symbol, with the latter having a really bad period right now and hence available at a bargain price.

Research In Motion itself is in danger of becoming obsolete, with or without a Cisco/Nokia combine. Just like Apple, it will have to find an alternative soon.

Palm / PalmSource also are losers, PalmSource may still find a buyer, perhaps Palm itself!

A Cisco/Nokia combine would also have meant that Nortel would be left without its prospective suitor!

Given Lucent and Nortel's (including from its recent PEC Solutions buyout) security-related contracts with the US Government, legislators will definitely block a bid from a foreign buyer. Otherwise, Nortel could easily combine with a European or a Chinese networking major.

I own Nokia (NOK), Symbol (SBL) and Nortel (NT) stock.


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