CISCO TO BUY WiMAX VENDOR?

Rumours that have been circulating in the past few weeks, concerning Cisco Systems Inc's plans to buy a major manufacturer/vendor of WiMAX base stations, are gathering pace as speculation mounts that a strategic acquisition could be announced later this month.

Cisco, a well-known serial-acquisitor of companies performing well in emerging technologies sectors, will have to buy one of the biggest WiMAX names if it wants to compete with the likes of Motorola Inc, Alcatel-Lucent, and Nokia Siemens Networks in the nascent wireless broadband market. Consequently, it's being rumoured that Cisco has narrowed down its shopping list to four potential targets. These are Alvarion Ltd, Aperto Networks, Navini Networks, and Redline Communications. Purchasing any one of these companies would instantly propel Cisco near to the top of the list of key WiMAX equipment suppliers worldwide.

Cisco has, so far, preferred not to get involved in the cut-throat public wireless infrastructure segment, but with rival Nortel Networks Corp having finally unveiled its WiMAX product range in recent weeks, Cisco may be fearful about getting left behind in a sector that promises high-revenuen growth over the coming decade. Until now, Cisco's position with regards to WiMAX had been that, although the technology will certainly be one of several high-speed wireless WAN technologies experiencing broad deployment in the short and medium terms, the company had no plans to manufacture WiMAX base stations or base stations using any other WAN radio access technology. According to the company's online position paper on WiMAX, Cisco will leave it to partner companies to provide radio components for next-generation base stations, but it will provide IP infrastructure to network such base stations.

So, buying a WiMAX equipment manufacturer would be a complete about-turn for Cisco and, given the solid performances of the leading independent vendors, such an acquisition would not come cheaply.

Top of the pile must surely be Israel-based Alvarion, which has recently ditched much of its legacy cellular equipment business in order to focus on fixed wireless broadband, and on WiMAX in particular. The company has been an aggressive player in obtaining supply contracts from incumbent operators as well as market-leading alternative network operators and service providers in emerging markets around the world, while its products have been and continue to be well-received by the industry at large. With a huge existing customer base and strategic partnerships poised to gain it access to the lucrative developed markets such as Japan and India, Alvarion seems to be the ideal acquisition target for Cisco. Some analysts are valuing Alvarion at between US$15 and US$17 per share, giving the company a top-range value of around US$1,050 million, which would be quite affordable for an industry giant like Cisco. There is also a degree of history between the two companies, as Cisco provides its IP access gateway solutions to Alvarion for use in fixed wireless access platforms.

Alvarion itself is likely to fight to stay independent, if it can. Becoming part of a larger US-based company could see it lose focus on its core emerging markets customer base, and integration with Cisco's own marketing and distribution systems could also be problematic.

Purchases of Aperto and Navini Networks also have much to commend themselves to Cisco, with the former being active in major markets such as Brazil and Turkey, and the latter already well-established in the US market as well as India. Canada-based Redline, meanwhile, has a cstomer base reaching into the Middle East and North Africa, Asia, and Latin America. However, none of these companies has the reach and brand visibility enjoyed by Alvarion, making the Israeli company most hotly tipped to be approached by Cisco with regards to a strategic partnership or outright acquisition.

ITI has published reports on several of the companies listed in this article, including Cisco Systems, Alvarion, Motorola, Alcatel-Lucent, Nokia Siemens Networks, and Nortel Networks