Recession polarizing fate of telecom gear makers

By Ritsuko Ando and Tarmo Virki - Analysis

NEW YORK/HELSINKI (Reuters) - Nortel Networks Corp's bankruptcy filing shows a global recession pushing weaker telecommunications gear makers toward bankruptcy and consolidation, leaving the industry in the hands of a stronger few.

Analysts said that most equipment vendors will suffer as companies and consumers cut spending on wireless and broadband technologies, but bigger companies with ample cash, like Cisco Systems Inc, are likely to keep acquiring assets at deep discounts, leading to a more polarized industry.

"The stronger are getting stronger and the small and weak are getting weaker and going under," said Harry Rady, chief executive and portfolio manager for Rady Asset Management.

"I think that companies like Cisco will continue to pick off companies in the 100 million to a billion-dollar range without having to pay much of a premium," he said.

Canadian telephone equipment maker Nortel filed for bankruptcy earlier on Wednesday, after a sharp slowdown in the United States and other major markets.

As in the case of Nortel, tight liquidity and a sharp drop in orders are seen pushing weaker players, who are struggling with debt obligations and intense pricing pressure, over the brink to a bankruptcy or buyout.

Analysts said Nortel's filing may make investors even more wary about the outlook for companies like Alcatel-Lucent with weak cash flow. While few forecast imminent failure, Alcatel-Lucent has been struggling with slower sales and a rocky transatlantic merger.

Alcatel-Lucent forecast in December a decline of 8 to 12 percent in the market in 2009, a far sharper drop than its rivals have forecast.