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In the blink of an eye, everything changes in telecom. The BellSouth-AT&T deal will cause some serious realignment in the services sector, but it will also have a big impact on the equipment maker. In my previous post, and my story for CNN Money, I tried to gauge the overall impact, but now with help of some of the smartest brains on Wall Street, here are some specifics.
Susan Kalla, of Carris & Company thinks that the merger will slow spending on wireline side but, will be good for wireless gear makers, such as Motorola, Nokia, RIM and Qualcomm. In directly, she thinks wireless chip maker, Texas Instruments could do well. In a research note to her clients, Kalla writes, “Over the near term, the equipment suppliers are likely to see a short term spending freeze as the operators reevaluate their network needs and consolidate network operating centers.” She thinks losers in this deal could be Lucent, Nortel, and Tellabs.
Joe Chiasson of Susquehanna Financial Group believes that Alcatel could be a big winner since it is a critical component of the Project Lightspeed, and already has a large presence in AT&T’s access networks. “Assuming that one-half (a percentage comparable to AT&T) of BellSouth’s residential customer base is eventually targeted for a Lightspeed upgrade, Alcatel just picked up roughly 6 million lines of IPTV business assuming it doesn’t drop the ball,” he wrote in a note today. Similarly he thinks Adtran, a key supplier to AT&T could see some upside mostly because of its optical products.
No such good news for Redback Neworks, which has been supplying DSL aggregation devices to both BellSouth and AT&T, each one accounting for over 10% of reenues. There was consensus that Redback would get a bigger piece of the action from BellSouth, as BLS rolled out its IPTV networks. AT&T has a different approach to IPTV (i.e. no B-RAS) aka distributed IPTV edge architecture, and Alcatel’s status as the preferred supplier, Redback’s could have limited gains.
And that brings us to Juniper, which is not going to see any gains. Chiasson points out that both BellSouth and AT&T are working with Cisco for their core and edge router needs. “The merger is potentially negative from the standpoint there is one less major service provider (BellSouth) deploying the centralized (B-RAS centric) IPTV architecture, and thus one less potential customer for the E320,” he says.
Potential good news could be in the offering for Ciena. “CIEN would benefit to a certain degree if T (SBC) were to extend its Coredirector ..long haul upgrade into BLS territory. ADTN would likely benefit slightly as it has a stronger relationship w/ SBC vs. BLS,” writes Nikos Theodosopoulos, telecom equipment analyst with UBS.