Food chain frenzy

Contrary to popular belief, the food chain doesn't necessarily have an up and a down. Sometimes the little fish try to eat the big fish - and sometimes fish open real wide and try to eat other fish of the same size. And while hunger is often the motivator, sometimes they eat to increase their territory. And every once in awhile, little fish offer themselves up, in some sort of sacrificial way, assuming that, as with the Borg from Start Trek, resistance is futile and they should just get this assimilation stuff over with.

This past week, we have seen examples of all of these, causing just a bit of panic, or at least consternation, in the ranks of CIO's everywhere. Take the announcement from Tellabs.

With fins beating furiously, Tellabs gobbled up Ciena, which is hot in dense wave division multiplexing, before Cisco could eat it up first.

This $7-billion deal makes sense - the two companies have complementary products and a similar customer base. Synergy, partly in the form of reduced marketing costs, could actually work here.

Still, there are questions. This is a one-to-one stock swap, and if Tellabs stock falls before the deal is done, stockholders could rebel - especially since the stock has been riding high for some time on acquisition rumors. [More details from Tellabs]

Far more complex, i.e., harder to understand, is Alcatel's decision to buy DSC. Even after listening to Alcatel explain the deal for several days, we still can't figure out where this will make Alcatel stronger in the fast-growth areas of the datacomm market. The consensus among the analytical staff here is that Alcatel should be following more of the Lucent model, buying up hot technology firms that bring access to new, growing markets, rather than going after a deal that appears to be more of a simple "bigger is better" approach. [Alcatel press release on the DSC deal].

And then we come to that perennial subject of takeover rumors: Bay Networks. We now know a little bit more about Mr. House's thoughts on potential mergers and acquisitions. In a week where Bay moved to acquire a company of its own (wireless vendor Netwave Technologies - an 802.11-oriented LAN vendor - for a mere $10 million), Mr. House stated "...we are actively pursuing...closer partnerships with telco equipment providers..." and "I think we are an attractive company." [Details from Bay]

Bay also had a board meeting scheduled for this past weekend, and Nortel has given notice that it will make a major announcement this week at SuperComm. Are these events related? They could be. Then again, Bay's board could just as easily be meeting to discuss the latest quarterly financials or other regularly scheduled topics of discussion. And Nortel could be announcing a new product initiative. Either way, the interest in speculating about Bay's future is spreading fast through both the industry and Bay employees. [See Is Bay in play? - Network World, 5/18/98]

As we have mentioned in past columns, it appears we are heading towards a long and hot summer - one that could be just as unpredictable as the winter was courtesy of El Nino. With regard to these recent announcements, the Qwest/LCI deal -- announced awhile back, but consumated last week - is a good one, as are the Bay and Tellabs/Ciena offerings. But given the frequency of these type announcements, users might want to be a bit more cautious about vendor selection during the coming months.

For more information about these announcements, check out the public reports section of our Current Analysis site.