As tremendous earnings concerns roil


(SHVA:Nasdaq), will the swooning networking-equipment concern take shelter in a merger?

Shiva plunged 15 3/8 to 19 5/8 on Wednesday after a feverish morning sell-off. The company is trading at about 26 times trailing 12 months earnings. In a single, furious trading day, investors lopped off nearly half its market capitalization. With 28.7 million shares outstanding, the market cap stands at about $560 million, compared to $1 billion on Tuesday afternoon.

"That makes them a real bargain-basement shopping experience" for a larger potential partner, says Jennifer Pigg, vice president of data communications for the

Yankee Group

consultancy, based in Boston.

Indeed, takeover rumors swirled around Shiva this fall. Among the suitors mentioned included broader suppliers such as

Cisco Systems

(CSCO:Nasdaq) and

Ascend Communications

(ASND:Nasdaq). And with Shiva now trading at a much lower price, some analysts think the buyers will return to sniff through the wreckage.

So far Shiva has opted to fly solo. The company builds "access servers," or computers that Internet Service Providers use to link their customers to the Internet, primarily for corporate customers--the low end of the market.

Meanwhile heftier, diversified rivals such as Ascend,


(CSCC:Nasdaq) and Cisco are weighing in on the high end of the market, peddling "access" gear in bulk to the phone companies themselves. Given that Shiva's corporate customers increasingly want to buy their Internet connections straight from the phone companies--which get supplied by the big boys--the sand is draining away from Shiva's low-end customer base.

One expert, who asked not to be named, speculated that Shiva could sell for roughly the current market cap value, or $550 million, if it was bought for its product value, while the engineering team and distribution channels may fetch a lower price.

The following sellout scenarios strike a chord with industry experts:

Shiva could merge with

Northern Telecom

(NT:NYSE), the massive manufacturer that already has a marketing relationship with Shiva. Canada's Nortel specializes in large switches and "rarely do they get into the giblets of small access servers," according to Pigg, who stressed that she was only speculating.

However, Pigg says that Nortel has been rumbling toward low-end customers, and buying the Shiva product line could advance that strategy. Nortel is a far bigger company, with a market cap of $17 billion; for the quarter ended Sept. 30 its cash and short-term investments totaled $143 million. Short-term debt and current long-term debt were $93 million.

Shiva also could fold into Cisco, the recognized leader of the network "router" business, a move that would offer Cisco another installed customer base and more specialized engineers.

Another possibility is Cascade, which could beef up its product line with Shiva's instruments, though Cascade's smaller size and recently announced purchase of closely held


makes Cascade a less likely suitor.

"In this whole industry, consolidation is key," said Brendan Hannigan, senior analyst with

Forrester Research

. "Smaller players are getting squeezed."

Matt Barzowskas, vice president at

First Albany

, held to his "buy" rating on Shiva through the day's rough trading, mostly in hopes that the dramatic price drop would lure a buyer hungry for a bargain. Says Barzowskas: "They can't be a long-term stand-alone company."

Shiva CEO Frank Ingari, appearing on


's "Market Wrap" Wednesday afternoon, said he is confident that the company can bounce back by concentrating on building new business.

By Kevin Petrie