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There is something of a shake-up taking place in the network infrastructure market and in a comprehensive analysis piece yesterday Reuters presents the case for Nokia Siemens and Alcatel Lucent merging in order to combat Ericsson and the increasing dominance of upstarts like Huawei and ZTE.

As the infrastructure market has been shrinking, both NSN and ALU have felt the squeeze - according to Dell'Oro Group, Nokia Siemens' market share fell from 26% a year ago to 20% in Q2, while Alcatel-Lucent slipped to 12% from 14%. At the same time, Ericsson has stayed steady at 32% while Huawei has almost doubled its share, jumping from 10% to 17%.

Ericsson has successfully been able to gobble up assets of the distressed Nortel, increasing it stronghold on the market and the suggestion is that Nokia Siemens, the number two manufacture, and Alcatel-Lucent, the number three, should now consider merging to bring breadth and the economies of scales to battle low-cost Chinese vendors Huawei and ZTE.

Last month, Ericsson paid $1.13 billion for Nortel's CDMA and LTE businesses, assets that will strengthen Ericsson's position in North America as the region undergoes major CDMA-to-LTE migration projects - Verizon Wireless being the biggest. Huawei has virtually become the vendor of choice in many developing markets and, unlike Ericsson and NSN, it has a strong WiMAX business with a recent contract win from Clearwire in the US. ZTE, China's second-largest equipment maker, recently posted a 42% rise in Q2 net profit, boosted by huge spending on 3G networks by Chinese telecom carriers.

However, Reuters points out that both NSN and ALU were themselves the product of mergers not so long ago and have yet to validate the success of these strategies. Alcatel-Lucent has yet to turn a profit since it merged in 2006 (although it did post its first quarterly profit last month) and shareholders are still waiting for the EUR 1.4 billion ($2 billion) in annual synergies to materialize. Obstruction to a merger may simply boil down to lack of appetite for another mega-marriage.

For more:
-Read the Reuters piece here.

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