I had a chat yesterday with Cisco chief development officer Charlie Giancarlo, who talked about a variety of topics, including the recent unveiling of technology to link emergency services radios in a more cost-efficient way. With the $2-billion Ericsson-Marconi deal unveiled earlier in the day, I asked Giancarlo if this is an indication of much-needed industry consolidation among the larger equipment suppliers. Here's what he had to say:
"I don't think it's yet a sign of consolidation. We do need consolidation in the vendor business but Marconi has not been part of the tier-one environment. The industry, as you know, especially in the optical space, is over competetive at the moment. There are very few players that are profitable - Cisco in one, Juniper is another and others are only moderately profitable, and there probably needs to be greater consolidation."
Given Cisco's modus operandi, do not expect it to be the major industry consolidator. Instead, it will continue to make small but strategic acquisitions. If anyone's going to make a big move, look to Alcatel, Siemens or Nokia. There has been scuttlebutt about Alcatel buying Lucent and Nokia and Siemens looking at Nortel. I think a Nortel deal is unlikely - unless it receives a blow-away offer, what with Mike Zafirovski coming in as CEO next month. The board will likely give him a chance to execute a turnaround before it thinks of entertaining takeover offers. A good clue of Nortel's plans could be Zafirovski's compensation package, which includes five million restricted stock units and five million stock options. This suggests he needs some time to improve operations so Nortel's stock can rebound and make his package even more lucrative.