NEW YORK (TheStreet) -- Telecom investors entered 2013 with analysts predicting a strong rebound in carrier spending. Pundits expected the likes of Verizon (VZ) and AT&T (T) would loosen their purse strings and reinvest capital back into their infrastructure, which would bode well for telecom giants like Cisco (CSCO) and Ciena (CIEN).
Given that the entire industry was able to post 20% gains, I grant that telecom equipment spending did recover. But it certainly wasn't at the robust levels that the Street expected. On the other hand, I don't believe investors anticipated the level of M&A activity that occurred, either.
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The year began with database giant Oracle (ORCL), with stock price gains of 13.1% in 2013, picking off Acme Packet for $2.1 billion. Little more than a month later, the company announced its intent to acquire network vendor Tekelec. Not to mention, given Tekelec's mobile traffic handling capabilities, Oracle is now able to leverage Acme Packet's existing strengths in data control to service the needs of large telecom giants like Verizon. This was a space previously dominated by Cisco and Juniper (JNPR).
The biggest winner in terms of M&A is Nokia (NOK). After spending $2.22 billion to buy the remaining portion of its joint venture with Siemens (SI) called Nokia Siemens Network (NSN), Nokia stunned the Street by selling its handset business to Microsoft (MSFT) for 5.44 billion euros ($7.2 billion). Essentially, in two deals, Nokia was able to solve its cash problems and I believe the company has a more attractive business now that it no longer has to compete with Apple (AAPL) and Samsung (SSNLF).
Nokia is now able to devote more attention on growing segments of its business that can truly prosper. And given the company's new cash infusion, along with what is still a strong global brand, Nokia's entry into the telecom services business will be an easy transition, one that will benefit shareholders in the long term.
In fact, with gains of almost 100% year to date, the Street has already rewarded the company for some smart decisions. And I don't see any standing in Nokia's way of a possible outperformance in 2014.
With gains of 44% on the year, Ciena (CIEN) was no slouch. I recall advising investors back in June to buy the stock, which at the time, traded at around $19 per share. It wasn't a popular call. But although carrier spending had not fully rebounded, I was encouraged by management's revenue and free-cash-flow growth strategies. It turned out to be the right call. Ciena stock went on a strong 4-month run soaring 47% to a 52-week high of $27.94 in October.
Shares have tapered off since then by 18%. And relative to, say, Adtran (ADTN), there are some that still believe Ciena stock has more room to fall. But even if that were to happen, Ciena still possess the ability to not only leverage its technological advantages to grow, but management consistently demonstrates a willingness to innovate and produce strong profits. To that end, I continue to believe that Ciena is one of the better operating companies within the telecom space, especially given its industry-leading position in optical equipment.
By contrast, it's hard to expect that Alcatel-Lucent (ALU) will repeat its 2013 performance of 250% gains -- much of which I have to attribute to the company's aggressive cost-cutting measures. I've never had a problem with this direction, I've just never believed that cutting costs addresses the company's competitive deficits against rivals as strong as Cisco and Ciena. And this is despite the fact that ALU has always had a strong patent portfolio -- one that seems to be wasting away due to underinvestment.
As 2013 winds down, I have not yet heard brash words about the outlook for carrier spending in 2014. But very rarely have there been consecutive years where large telecom giants have neglected their own needs by spending, especially during periods of strong profitability. That said, while I do believe the likes of Cisco and Palo Alto Networks (PANW) will exceed their 2013 stock gains, I wouldn't base my investing decisions solely on this premise. Those that are able to raise guidance will be rewarded.
At the time of publication, the author was long AAPL.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.