In the past six weeks, three telecom equipment vendors — Copper Mountain Networks, CoSine Communications and Sycamore Networks — have announced their enlistment of outside help in evaluating “strategic alternatives” such as mergers and acquisitions. But despite their partnerships with larger companies, the middle of 2004 is not an easy time for network equipment vendors to find an M&A exit.

CoSine struck a partnership with Fujitsu in June, but when CoSine, the maker of managed IP services gear, reverted to a skeleton staff this month, Fujitsu wasted no time dissolving the partnership and searching for a replacement. While Fujitsu may have considered CoSine a worthy partner, analysts don't expect Fujitsu to buy the company. Instead, said Yankee Group analyst Mark Bieberich, a vendor with existing IP-based products will likely snatch up CoSine's intellectual property on the cheap.

“Fujitsu's not quite ready to enter the Layer 3 infrastructure market on its own,” Bieberich said. “I think they formed the [partnership] to evaluate their opportunities beyond the transport layer. Fujitsu doesn't have the Layer-3 resources to take on [a CoSine acquisition].”

Optical switch vendor Sycamore is partnered with Siemens, which happens to be one of the few major equipment vendors without its own optical switch. But despite the complement, the two aren't likely to become more than partners. Analysts say Sycamore (in much better shape than CoSine or Copper Mountain) has a long-standing aversion to being acquired and would likely set a price that Siemens would consider too high for a company in the anemic long-haul optical space.

“Sycamore is looking for the premium price,” said Sam Greenholtz, principal of consultancy Telecom Pragmatics. “Siemens is looking for the fire sale price.”

With almost $1 billion in cash, Sycamore could acquire companies itself, following the path its rival Ciena embarked on years ago, hedging its bet on the long-haul optical core by buying or partnering with companies whose focus is closer to the network's edge. But some argue the strategy hasn't been successful for Ciena, which has been missing its quarterly revenue goals.

“All you have to do is look at where Ciena is right now to know that's a mistake,” said Mark Lutkowitz, Telecom Pragmatics principal. “Sitting on their cash is the best thing Sycamore can do. [The cash] is one of the most attractive aspects of the company.”

Copper Mountain has the opposite problem. The access equipment vendor ended the second quarter with $22 million in cash, $2 million in revenue and a quarterly cash burn of about $6 million. It's had steady success with small independent telcos, but to land an all-important Bell customer, it needed a well-entrenched vendor as a partner. Its choice, Ericsson — a corporate powerhouse that nevertheless isn't well-known among RBOCs for its access gear — hasn't quite fit the bill.

Hypothetically, Copper Mountain's gear could fill a hole in Lucent Technologies' portfolio, said Current Analysis analyst Erik Keith, but Lucent does more partnering than acquiring these days. And a big vendor shopping for broadband remote access servers could do better than Copper Mountain, which entered the game a little late, Bieberich said. This week Copper Mountain is expected to introduce new fiber, video and Ethernet aggregation interfaces for its access platforms. But only a big carrier win (a Chinese carrier is reportedly trialing the gear, for example) is likely to entice any would-be acquirers. And the company's quickly evaporating cash doesn't give them much time to close a deal.

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