Cisco Systems is mulling a bid for the top mobile phone maker

[Dave Farber <dave () farber net>]

update Nokia shares rose more than 3 percent on Monday after a newspaper 
report that Cisco Systems is mulling a bid for the top mobile phone maker 
to get hold of its wireless infrastructure technology.

At 3:22 a.m. PST, Nokia's shares were up 2 percent at 13.19 euros, having 
earlier touched 13.35, outperforming the DJ Stoxx technology index, which 
was up 0.85 percent.

The Business newspaper reported on Sunday, without identifying its sources, 
that Cisco's chief executive, John Chambers, was believed to be interested 
in merging with a wireless infrastructure company.

It said Cisco had identified Finland's Nokia as the most likely target, 
although the U.S.-based firm has previously focused on acquisitions of 
niche technology players.

Cisco declined to comment on the London newspaper report. Nokia spokeswoman 
Arja Suominen said the article seemed to be "pure fabrication based on 
rumours on the Internet."

Nokia has previously said it did not plan to sell the networks division, 
which it considers part of its core business. The unit is the world's 
second-largest mobile infrastructure maker after Sweden's Ericsson.

Marko Alaraatikka, a fund manager with Finnish-based Evli, said it would 
make sense for Cisco to acquire Nokia's networks operations, which has 
annual sales of $7.87 billion, and made up 22 percent of Nokia's turnover 
in 2004.

"Buying (Nokia's) networks division would be good for Cisco ... if they 
want to diversify into wireless networking," said Alaraatikka, who helps 
manage $4.3 billion in assets.

"But for Nokia, I think they would ask a pretty high price for it," said 
Alaraatikka, whose funds hold Nokia stock.

Cisco, the largest maker of Internet equipment, is worth about $123 
billion, while Nokia's market value is around $71 billion.

Analysts skeptical
Credit default swaps on Nokia were unmoved by the report, with five-year 
default swaps indicated at 21.5 basis points, which means it costs $21,500 
a year to insure $10 million of debt against default.

The Business said Cisco's mainstay networking market was changing fast with 
the convergence of fixed-line and wireless networks, and the company needed 
technology for intelligent wireless applications, which Finnish-based Nokia 
could provide.

Several analysts were sceptical about the report.

"I have seen similar rumours twice before," said eQ Bank analyst Jari Honko.

Nordea analyst Karri Rinta was also dubious.

"Cisco is already doing growing business with mobile operators with the 
products and services they have in their portfolio, so (there's) no 
pressing need to acquire new products to get into this business," said 
Rinta, who has a short-term "sell" recommendation on Nokia shares.

Selling its mobile infrastructure business would make it tough for Nokia to 
maintain its strong position in handsets, and would put it at a 
disadvantage in developing technology for third-generation networks, he added.

Nokia and Cisco launched a cooperation deal in June under which mobile 
phones made by Nokia's enterprise unit will connect to Cisco's IP-based 
corporate telephone switches.

Cisco is due to report its fourth-quarter and full business-year figures on 
Tuesday.

Reuters' Laura Vinha, Arild Moen, Tarmo Virki and Rex Merrifield in 
Helsinki and Richard Barley in London contributed to this report.

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