Cisco Waffles on Wireless

Some observers think a linkup with the likes of Nokia is far from outlandish, given industry trends.
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Nokia

(NOK) - Get Report

may be the big one that got away from

Cisco

(CSCO) - Get Report

.

Absurd? Maybe. A report earlier this week that the two tech giants were

exploring a megadeal certainly failed the initial smell test, as analysts weighed in with their quick dismissals.

Both companies offered denials. Cisco CEO John Chambers, in a categorical way, told analysts on a conference call Tuesday that a company as large or far away as Nokia didn't fit Cisco's acquisition strategy. Nokia, Chambers said, was "outside our strategy and outside our thinking process."

"It sounded a lot like someone who got caught cheating on their spouse. 'I did not have talks with that company,'" says Ovum analyst Roger Entner.

It is possible, as Chambers suggested to analysts, that some signals were misinterpreted and discussions of potential marketing partnerships were blown out of proportion.

Of course it's also possible that Cisco, the leader in Internet gearmaking, saw cell-phone king Nokia at the center of its blueprint for the future.

Some industry observers, keen to the converging paths of wireless and Internet technologies, say the pairing would be far from outlandish.

Here's the presumed logic: One day, all networks -- wired and wireless -- will be based on Internet protocol, or IP. But Cisco, having ridden that trend to great glory over the past 20 years by conquering the computer networking industry, now finds itself in a rut. Worse, Cisco is starting to see declines in its core business in areas like Japan and China as lower-priced rivals cut in on the action.

Wireless looks increasingly like the next frontier, but Cisco needs a way in, say analysts.

"Cisco has the curse of 80% market share, meaning you basically grow with the market," says Ovum's Entner. "You end up just like

Microsoft

(MSFT) - Get Report

-- you have to get into something else."

So why not Nokia?

Expensive? Sure. Finnish? Obviously. But Nokia is in a similar situation as Cisco: an industry-leading sitting duck.

Nokia won the handset game. Yet now it finds itself simultaneously trying to gut it out in the cheap phone markets like India, and hoping to crank out new model designs fancy enough to keep up with

Motorola

(MOT)

.

"I hear the idea poo-pooed all over by analysts as not the right kind of cultural or logistical fit," says Heavy Reading analyst Scott Clavenna. "But I have to believe there is something behind the curtain."

It may be coincidental that both Nokia and Cisco have reshuffled top management. CEO Jorma Ollila said last week he was leaving Nokia to run

Royal Dutch Petroleum

next year. And Charlie Giancarlo, the brains behind the

Linksys

buy and Cisco's lurch into consumer electronics, was thrust into the No. 2 job last month.

Some analysts say if Cisco is looking for more of a wireless infrastructure opportunity,

Lucent Technologies

(LU)

may be the best route.

"If you want to buy U.S. wireless business, buy Lucent, but why stop short. The only one with integrated infrastructure and device manufacturing is Nokia. And Nokia is a global presence," says Entner.

Cisco is at a major crossroad. It's hugely profitable, commanding slightly more than 10% annual sales growth sitting on $16 billion in extra cash. But alone, it's not fully equipped to trailblaze the path toward a wired and wireless Internet convergence.

"Maybe Nokia isn't the right one," says Clavenna. "But Cisco is potentially missing out on one of the biggest trends in networking today."