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More merger mania!
The M&A climate for tech improved in '03. Now here are 5 really big deals I'd like to see in '04.
December 23, 2003: 3:41 PM EST
By Paul R. La Monica, CNN/Money senior writer

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NEW YORK (CNN/Money) - We need more tech mergers in 2004.

Sure, the consolidation carousel started to whirl again in 2003. But most of the deals were relatively small. The most significant merger announcement of the year was for a deal that may never be consummated -- Oracle's hostile bid for PeopleSoft.

Next year, I'd like to see some truly groundbreaking deals, something along the lines of Hewlett-Packard and Compaq or Bell Atlantic merging with GTE to create the behemoth now known as Verizon (VZ: Research, Estimates).

So here's my tech merger wish list. I highly doubt any of them will be granted but I do think there are solid reasons why they should.

Verizon buying Sprint PCS Verizon, along with British telecom Vodafone (VOD: Research, Estimates), co-owns Verizon Wireless, arguably the most successful wireless carrier in the country. Sprint PCS (PCS: Research, Estimates) is arguably the weakest. You do the math.

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"There should be consolidation among North American wireless carriers," said John Rutledge, manager of the Evergreen Technology fund. "There are too many and Verizon is clearly the strongest."

Both companies' networks run on the code division multiple access (CDMA) standard so there would be no major technological hurdles to this deal. Plus, Sprint PCS' market value is just $5.5 billion. That wouldn't break the bank for Verizon, with a market value of $94 billion.

And Verizon scooping up Sprint PCS could finally set the wireless consolidation gears in motion. It certainly would make a rumored Cingular deal for AT&T Wireless more likely.

Cisco buying Veritas Software Cisco has been, throughout its history, a very acquisitive company. But buying Veritas, which has a market value of $15.5 billion, would be its boldest move.

It's no secret that Cisco's bread and butter business of selling routers and switches to big businesses is starting to mature. And Cisco (CSCO: Research, Estimates) has said storage is a growth area it is targeting. So why not Veritas (VRTS: Research, Estimates), the clear leader in the storage software industry?

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Cisco and Veritas are already partners -- the two announced they were teaming up last month to develop Cisco switches that feature Veritas software on them. And Veritas would also likely provide a further boost to Cisco's already strong profit margins. Veritas reported gross margins of 85.4 percent in its latest quarter.

A software deal for Cisco would make a lot of sense, especially since storage leader EMC (EMC: Research, Estimates) is indicating that it believes the future of the market lies in software. EMC is quickly transforming itself from a hardware company to one that also offers software solutions, with purchases of Legato Systems, Documentum and privately held VMWare this year.

Motorola buying Apple I know. I know. Apple (AAPL: Research, Estimates) is NEVER going to sell out. It would be a sin if the company did. But just think of the possibilities.

Motorola is planning to take its unprofitable semiconductor unit public. So Motorola (MOT: Research, Estimates), after the chip business is gone, will essentially be a consumer electronics company -- the cell phone unit will make up more than half of Motorola's sales. Plus, Motorola has also recently announced plans to sell flat-screen TVs and DVD players.

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But Motorola has had some problems with its cell phone business lately. Its camera phones are coming to the market late and competitors such as Samsung, Siemens and LG are gaining ground.

Sooooo, how cool would it be if Motorola bought Apple so that Apple could completely revamp the cell phone business?

Consumers, even non-Mac users, love Apple's iPod. Imagine what Apple could do if it had the chance to design phones?

Motorola also has a struggling division that makes cable set-top boxes. Now think of Motorola being able to sell a box with a TiVo-like device developed by Apple and suddenly that division's prospects seem a bit brighter.

Michael Cohen, director of research for Pacific American Securities, said that this scenario is highly unlikely but not implausible. "I can't think of any reason why they couldn't do a deal since they have no overlap."

Here are some quick thoughts on two other deals I'd like to see.

Texas Instruments buying AMD AMD, which now boasts a technological edge over Intel with its 64-bit Athlon chip for desktops, would benefit in its fight against Intel if it was part of a stronger organization that could afford to spend more on marketing and R&D (i.e. one that wasn't bleeding red ink).

And for TI (TXN: Research, Estimates), buying AMD (AMD: Research, Estimates) could give it a strong foothold in the microprocessor market for PCs , which still seems healthy thanks to a surge in laptop computer sales.

Microsoft buying Siebel Systems Microsoft (MSFT: Research, Estimates) could afford to buy just about anything with its $51.6 billion in cash.

But its best move would probably be to continue bolstering its corporate software business. Scooping up Siebel (SEBL: Research, Estimates) could give it a bigger presence in the hot customer relationship management software (CRM) market for larger business customers and strengthen its position against the likes of SAP (SAP: Research, Estimates), Oracle (ORCL: Research, Estimates) and IBM (IBM: Research, Estimates).

Rutledge and Cohen have some merger thoughts of their own too. Rutledge said that it could make sense for chip equipment firms Novellus Systems (NVLS: Research, Estimates) and Lam Research (LRCX: Research, Estimates) to combine in order to more effectively compete against industry leader Applied Materials (AMAT: Research, Estimates).

And Cohen said that HP (HPQ: Research, Estimates), which has mentioned that it is interested in pursuing software acquisitions, should target infrastructure software firm BEA Systems (BEAS: Research, Estimates), which has also been mentioned as a possible target for Oracle.

Anyway, here's hoping for some more exciting deals to write about in 2004.


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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.