Analysis: More networking mergers coming say analysts

Northern Telecom's $9.1bn (£7bn) acquisition of Bay Networks may be one of the largest deals ever seen in the networking space, but it's far from the last.

As stock prices plunge, and voice and data networks become more and more interchangeable, the merger mania that has taken over most industries will continue in the networking arena.

Besides the much-rumoured Nortel-Bay deal, the past few weeks have seen Tellabs snap up Ciena for $7bn (£5.4bn) and Alcatel Alsthom make a $4bn (£3bn) bid for DSC Communications. Over the past few months, Lucent Technologies has picked up Livingston Enterprises, Prominet and ATM manufacturer Yurie Systems.

Ever since Bay missed its profit expectations last quarter, it had been seen as the next likely target. Rumours had it being courted by companies like Ericsson and Lucent. And they're likely still looking.

"The telco equipment makers [like Lucent and Nortel] are buying the likes of Bay and the rest because it gives them instant [distribution] channels, said Craig Johnson, an analyst at Current Analysis in the U.S. "Historically, your Nortels and Lucents haven't sold through the data channels. And that's a leverage they'll be able to deal with now."

And now is certainly the right time to buy. Once a high-flying sector, data networking companies have seen some precipitous drops in their share prices.

The slide began last fall, and while some, like Ascend, have recovered and even risen slightly, others have stayed down, making them more attractive to potential buyers. 3Com, Cabletron Systems and Newbridge Networks have all seen their stock prices fall more than 50 percent since last September.

And with the mergers that have taken place, some of those companies may need some help going forward.

Nortel and Lucent have more power to compete now against companies like 3Com and Cabletron. "I would suspect there would only be Cisco Systems and a couple other players left on the data side over the next 12 to 24 months," Johnson said. "The likes of Cabletron, and several other players will probably be in the offing, whether or not a deal is consummated."