After Atrica and Apertio, will NSN buy Adva or Adtran?

With two acquisition announcements in the last three months, Nokia Siemens Networks is clearly in M&A mode, though its next move is anyone’s guess. A look at NSN’s existing product portfolio, however, provides some insight into what moves might make sense for the joint venture.

In October, NSN made its first acquisition, of seven-year-old Ethernet access equipment vendor Atrica, for an undisclosed sum. Last week it acquired five-year-old IMS vendor Apertio for $205 million.

Those first two acquisitions came near the end of a rocky first year for the new megavendor. In December, Mark Sue, an analyst with RBC Capital Markets, said NSN “continues to underperform” and that “much work needs to be done.”

More acquisitions could brighten that picture. NSN cited a highly competitive market behind its outlook for only slight growth in 2008--pain that could be soothed relatively quickly by consolidation. NSN already has a fairly broad product portfolio, including broadband access, wireless and IP transport. But gaps remain, and the vendor has plenty of room to expand. So which vendors might NSN acquire to fill those gaps?

Rumors swirled last summer that NSN might acquire Tellabs, instantly becoming a trusted supplier of optical transport and access gear to one of North America’s biggest spenders, Verizon Communications. Those rumors cooled when both vendors reported having had disappointing second quarters, though theoretically, a return to healthier numbers could revive such talk. With a market cap of more than $2.6 billion, Tellabs would be a much bigger purchase than NSN has made so far, but the company’s stock is trading at about half the price it was this summer, and since November, it has been searching for a new chief executive officer. The company might now be bargain-priced.

“[Tellabs] would give [NSN] some products that they could improve upon rather quickly and make an impact while at the same time picking up a business for a percentage of its value just several years ago,” said Sam Greenholtz, consultant and co-founder of Telecom Pragmatics.

As a mid-sized vendor, Tellabs struggled to improve its margins in some of its most competitive markets last year, selling its reconfigurable optical add/drop multiplexers and its fiber-to-the-home customer premises gear for little or no profit. But folded into a larger manufacturer like NSN, especially with the added cross-selling opportunities such a move might enable, those margins might become more manageable.

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