Technology Rumor of the Day: Starent

Will Cisco barrel in and break up hot stock Starent's wireless infrastructure party?
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Nope, no merger speculation here.

Quite the opposite, really.

Starent

(STAR) - Get Report

has been a wireless infrastructure star of late. As networks support more smartphones, Starent has been a key supplier of hardware and software to better manage resources and deliver media and advanced services.

Starent makes so-called packet core gear for mobile-phone networks. The Tewksbury, Mass., tech shop has enjoyed an enviable niche position as telcos look for equipment to support higher traffic volumes and sell more Net-based services like video.

Not only has Starent shined in 3G upgrades, the company has already made the short list of suppliers named in recent 4G long-term evolution or LTE building plans from telcos including

Verizon

(VZ) - Get Report

and device makers like

Samsung

.

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The stock has more than doubled since its November low as investors found a winner amid a bruised battlefield.

Nortel went bust.

Alcatel-Lucent

(ALU)

plods along.

Ericsson

(ERIC) - Get Report

has held up well, so far.

The company has two telco customers in the U.S.,

Sprint

(S) - Get Report

and Verizon, which make up 90% of the company's total revenue. Starent has had nearly a lock on the packet core market here in the U.S., up until now.

Here come the lumps in this gravy train.

Cisco

(CSCO) - Get Report

is in trials at Verizon to sell similar gear, according to two people familiar with the companies. Fans say Verizon is merely using Cisco's presence as a way to keep Starent honest. The company's gross margins were a plump 78% last year.

The big worry here is that Starent suddenly losses its sole supplier status and is forced to share its pie with another vendor. And in this case, not just any vendor, but Cisco, an outfit with enough product and pricing leverage to put a big dent in Starent's business.

A cautionary tale would be SigmaTel, the sole supplier of iPod chips that rode a crest of investment popularity until

Apple

(AAPL) - Get Report

found other suppliers. SigmaTel faded and was picked up by chipmaker

Freescale

for $108 million last year.

Despite a big market surge, Starent shares are down 7% in the past two days as investors get concerned that it may start to get crowded in this niche.