Monday, August 08, 2005

Excitement in the Ether
An intriguing suggestion (dismissed as a rumor by Nokia) has appeared over the weekend - that Cisco is eyeing an acquisition of Nokia, evidently driven by a desire to strengthen its wireless infrastructure business. At a superficial level, this sounds plausible - companies worldwide have amassed unprecedented cash hoards (see, for example, The Economist and Business Week), due in part to central bankers' generosity in keeping real interest rates at historic lows, and we can well expect to see a rash of acquisitions in the near future. Also, Cisco certainly is one of the cash-rich giants around, and has amply proven its acquistion credentials.
However, we must pause and ask, how much business sense does this make? As Marek Pawlowski points out, Nokia's business is in making handsets more than wireless networking equipment, and Cisco will be hard put to rationalize buying all of Nokia just to get its wireless infrastructure manufacturing business.
Neither does such a deal appear to make a lot of sense for Nokia, which does not strike me as an overly enthusiastic acquisition target - at 34% of the world market, its handsets outsell those of the nearest competitor (Motorola/Samsung) by 2 to 1. And that is hardly a market that is shrinking - worldwide handset shipments are likely to double over the next 5 years to 1.2 billion.
The backdrop is not very promising either - recent megamergers in the tech space have hardly been stellar. HP / Compaq and AOL / Time Warner come to mind.
And given the size of the deal, even a veteran with Cisco's admittedly high 'Acquisition Quotient' is likely to be overreaching with this buy.