Nokia-Siemens Deal Fuels Merger Talk

Associated Press has another article on the Nokia (NOK) and Siemens (SI) joint venture and how it is fueling "speculation the big telecom players would look to gobble up companies to add technologies and customers."

Albert Lin at American Technology Research thought the "deal, along with the recent Lucent-Alcatel merger, signaled to investors that a wave of long-awaited consolidation in the telecommunications industry may be under way." He said, "For several years investors have been wondering when will there be consolidation." He noted, "the industry suffers from oversupply, high research expenses and rising costs to grow market share, which all suggest companies could make more money if they added scale."

Lin opined, "People correctly concluded there needed to be consolidation. Suddenly we get Alcatel and Lucent, followed pretty quickly by Nokia and Siemens. The feeling is there will be an acceleration for those who haven't thought about consolidating to make a move. That's why some of the smaller players are being looked upon."

Lin suggested "some of the most attractive companies might be Asian companies and smaller, private companies that aren't household names. Companies like Ericsson, Motorola (MOT) and Nortel will be looking for acquisitions that can add customers and supply new technologies to supplement offerings."

Lin pointed out that "many of the major telecommunications companies scaled back research on technology that wouldn't yield profits for many years." He commented "They were left with a technology gap versus small companies whose sole purpose was to innovate. Some of those have become much more interesting to the larger companies."

Oppenheimer analyst Troy Peery remarked "the smaller companies researching next-generation technologies aren't likely to sell themselves just as they're about to realize profits on the products they've been developing." Peery said, "With some of the weakness in these stocks lately, it rightly or wrongly increases speculation around whether these names could be the targets of acquisitions."