A push to increase the number of broadband service providers could prove to be a financial bonanza for broadband networking vendors like Nortel Networks and Lucent Technologies Inc. and could help bring about a last-ditch turnaround for Cabletron Systems Inc. That push could become a windfall for stockholders.
Matthew Barzowskas, an analyst at First Albany Corp. in Boston, says increasing the number of broadband service providers will mean plenty of business for equipment companies.
Lucent and Nortel will be among the major players in a market that Barzowskas predicts will be worth "hundreds of billions of dollars."
Toronto-based Nortel (NYSE:NT) is currently a leader in telecommunications networking and data communications networking gear, says Todd Coupland, an analyst at CIBC Wood Gundy, also in Toronto. Nortel reported US$4.4 billion in revenue for the first quarter.
Makings of Winners
Despite Nortel's position, Coupland says he doesn't currently rate the company's stock as a Buy because its shares are overpriced. "A small correction in the share price would make it into a Strong Buy," he says.
Analysts say Lucent (NYSE:LU) will also be a major player in the broadband market even though it lacks the equipment to upgrade its systems.
Lucent has the size and financial strength to buy in to this market and is in a nice position to develop systems, says James Kerdersha, an analyst at Boston-based SG Cowen Securities Corp. Lucent, which SG Cowen ranks as a Buy, made headway into this space by buying Ascend Communications Inc. in January and creating the Broadband Networks Group.
Barzowskas says Cabletron (NYSE:CS) must get a piece of the broadband network pie if it is to improve its position in the market. Barzowskas rates Cabletron as a Hold, but he says the company now has a management team that should help it become a service provider in the cable area.
"I don't see a rebound happening if they can't," Barzowskas says.