..It’s a nice rumour, but it’s also an interesting exercise in “what if”
When a British Sunday newspaper runs a story such as The Business’ report that Cisco was considering purchasing Nokia in order to get its hands on the company’s networking division, then the best question to ask is, “Who benefits?”
Clearly, if the piece is well-sourced and provable then the journalist has a scoop on his hands and fair play to him. But there is a long history of tips being handed on to journalists, very often on the Sunday papers, if a company wants to float something at arm’s length in a deniable fashion.
Traditionally Sunday has been the day of choice because you can set the agenda for the following week. If such a story is truly choreographed then various supporting analysts and brokers will emerge over the next couple of days to say they think the deal is a good ‘un. Then you often find one of the major shareholders in the target company strongly recommending the offer. If it is merely a flier, then the story takes a bit of a nose dive and plenty of other stronger stories are available to bury it.
Time will tell with this one if a) the story is a complete flier on the part of the journalist b) the story is a deliberate leak from Cisco wishing to test reaction c) the reporter has an unauthorised leak, and a genuine scoop.
For our part, being mere mobile market watchers as we are and not City journalists accustomed to getting the nod on a takeover story over a conspiratorial drink, the match-up between Cisco and Nokia’s infrastructure businesses looks viable merely from a powerpoint point of view — although that in no way means it can or will happen. Cisco has bought and scrapped hard to have a major share in WLAN equipment sales, and with mobile VoIP exercising the minds of operators, a say in mobile network equipment would combine well with Cisco’s WLAN position. Mobile networks move ever closer to IP in the core and the radio access networks and clearly Cisco’s router business and knowledge of IP is unparalleled (sorry Juniper). It has also been touting Cisco Mobile as a “vision” for a while. But does it want a consumer handset division? It has none of the channels or brand marketing or scale of that kind of operation. It seems likely that if Cisco is seriously thinking about the purchase, the handset division would be run separately, or else dispensed with altogether.
A final thought. If Cisco does fancy a slice of the mobile pie, is Nokia in fact the tastiest morsel? Consolidation in the operator space has been met with little consolidation over on the vendor side so far. The traditional players (Alcatel, Ericsson, Nokia, Siemens, Motorola, Nortel, Lucent) are all still fighting away, as are the Japanese competitors (NEC, Fujitsu) often in partnership with other vendors. Then there is the new wave of cheaper Chinese companies Huawei (most recently rumoured to be looking at a deal to put Marconi out of its misery) and ZTE.
The obvious point there is that of the established players Nokia is the least competitive to Cisco, but its networks business is dwarfed by its handset money maker, so a deal on the network side could make sense. I stress this is all entirely hypothetical, but these exercises are sometimes worthwhile because they make you think about the shape of the industry and market in which we operate. After all, with Qualcomm in such a spate of acquisitions and partnerships at the moment (see page 7), it’s obviously not just us that has been thinking about where the major companies will want to be when the implications of IMS and IP really shake out.