The telecom rally took a breather Tuesday as investors continued to weigh the implications of this week's megadeal.
AT&T's ( T) $67 billion acquisition of BellSouth ( BLS) isn't due to close until next year, if ever . But the pact has put telecom equipment suppliers squarely in the crosshairs. Analysts and investors are trying to figure out how outfits like Ciena ( CIEN), JDSU ( JDSU), Cisco ( CSCO) and Corning ( GLW) may fit into Ma Bell's spending plans in the years to come. This means, however, that current BellSouth suppliers like Tellabs ( TLAB), Redback ( RBAK) and Juniper ( JNPR) may get the bump. Megadeals rarely open up spigots of cash in the network infrastructure market. In fact, fewer buyers tend to make for leaner times ahead for suppliers, say analysts. The Nasdaq Telecommunications index, which had been up 15% this year, fell 2% Tuesday in the wake of the AT&T/BellSouth deal. "It is not likely that the equipment industry is going to see better growth prospects postmerger in most categories when compared to the buying of the two companies individually," American Technology Research analyst Albert Lin writes in a note Monday. It's not like AT&T and BellSouth are planning to drastically change their spending habits after the merger closes. The companies said on a conference call Monday that they would probably trim their consolidated capital budget by 2% in 2009. The companies had pro forma combined capex of $17.9 billion last year, AT&T said on the call. That means the suppliers aren't likely to take a huge hit across the board. Still, investors only need to look at old-line vendors like Lucent ( LU) and Nortel ( NT) to see how telco consolidation has taken the fun out of selling phone gear. Both companies have seen their sales drop over recent years, forcing cycle after cycle of layoffs and product line cutbacks.