Phone Suppliers Staying Single

Big phone companies keep pairing up, but their suppliers are proving stubbornly independent.

The telecom industry is full of battle-hardened networking gearmakers. Having narrowly survived the sector wipeout of a few years back, outfits ranging from Lucent (LU Quote) and Nortel (NT Quote) on down the line have shown that they're lean enough to paddle on even through stormy market conditions.

But investors are feeling a little damp, finding that their reward for sticking with these outfits is minuscule growth. Worse yet, sales gains are probably going to get harder to find as big phone company customers merge -- and analysts don't see a corresponding merger wave on the equipment side for at least a year.

The last few months have brought proposed linkups between SBC Communications (SBC Quote) and AT&T (T Quote), Verizon (VZ Quote) and MCI (MCIP Quote), and Sprint (FON Quote) and Nextel (NXTL Quote). Around this time last year, Cingular and AT&T Wireless rolled out their own plans to fuse together.

It's no wonder that investors are calling for a corresponding pair-up trend across the telecom equipment sector. But observers say that while the rationale to combine forces with competitors is apparent, don't expect action anytime soon.

Despite increased speculation about talks heating up between tech giants like Motorola (MOT Quote) and Lucent, or rumors that Cisco (CSCO Quote) is interested in Nokia's (NOK Quote) wireless infrastructure business, industry observers and insiders say blockbuster mergers could be a year or more away.

Analysts say there are several reasons most outfits remain cool on consolidation. Some shops, feeling reborn after a long period of cuts, want to take their newly lean businesses for a spin in the market. Other shops that would offer reasonable strategic fits with North American shops -- such as overseas players Ericsson (ERICY Quote) and Alcatel (ALA Quote) -- seem to pose major cross-border cultural and political issues.