Alcatel SA's potential takeover of Lucent Technologies Inc may spark a wave of takeovers among networking-equipment companies.
Tellabs Inc and Ciena Corp are among the most attractive targets, said Pacific Crest Securities analyst Tim Daubenspeck.
Nortel Networks Corp, North America's biggest maker of phone gear, may also seek a partner, according to CIBC World Markets analyst Stephen Kamman.
Alcatel said last week that it was in talks with Lucent to form a company with more than US$25 billion in annual sales. The two would challenge Cisco Systems Inc, the largest maker of Internet gear, and Ericsson AB. A purchase of Lucent, which would cost more than US$12.6 billion, may force smaller companies to combine to compete.
"There's definitely going to be more consolidation," said Jeff Heynen, an analyst at Infonetics Research.
Smaller telephone-equipment makers have "got to start looking around and finding potential M&A candidates that will give them the scope to go after the huge phone companies," he said.
Shares of Nortel, Tellabs and Ciena advanced last Friday after Alcatel and Lucent said they were in talks.
Equipment makers are battling for a bigger share of the US$336 billion market for telecom gear.
AT&T Inc and Verizon Communications Inc, the two biggest US telephone-service providers, are spending billions to upgrade their high-speed networks for delivery of video. Wireless companies such as Cingular Wireless LLC are starting to offer combined voice, data and video services over mobile phones.
Talks between Alcatel and Lucent revived negotiations that fell apart five years ago over who would run the company. Lucent chief executive officer Patricia Russo probably will run the merged entity, which would be based in Paris, according to people briefed on the plans.
Tellabs bought Advanced Fibre Communications Inc in December 2004, giving it access to contracts from carriers developing networks for high-speed Internet access.
Tellabs also has "very strong" relationships with Verizon and BellSouth Corp, Daubenspeck said.
"If customers consolidate, then equipment suppliers will," Tellabs chief executive officer Krish Prabhu said in an e-mail response to questions about the Alcatel and Lucent combination.
Kammon expected the news to "heighten merger speculation around Nortel."
Merger activity in Europe may also pick up, according to Heynen of Infonetics.
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