The Financial Times reported last week that Cisco (CSCO) is "open to much larger acquisitions," and Bloomberg yesterday stated that Ericsson's call option volumes were on track to reach their highest weekly level since April 2015. Moreover, Ericsson's stock had rallied significantly since February 17, and Bank of America said that a merger between the two companies "could have benefits," the news service noted. However, JPMorgan says that speculation about an acquisition of Ericsson by Cisco is unwarranted, as the firm believes that Ericsson "is not a good fit" for Cisco.

DOESN'T MAKE SENSE: A merger between Cisco and Ericsson "doesn't make sense," wrote JPMorgan analyst Rod Hall. Cisco would only benefit slightly from owning cellular access technology, Hall believes. Although Hall thinks that network automation will eventually be achieved by combining IP technologies with "optical integration," he says that most of the cost benefits from such integration can be realized without controlling cellular access. Additionally, facilitating Internet of Things communications also probably won't require owning cellular access, the analyst stated.

NOT SIGNIFICANTLY PROFITABLE: Acquiring Ericsson would only boost Cisco's profits by about 10%, Hall estimated. If no revenue and spending synergies are achieved, the deal would only increase Cisco's earnings by 4%, the analyst stated. Furthermore, Cisco's margins would drop to 53% from 64% in the wake of such a theoretical merger, the analyst warned.

RATING: Hall kept a Neutral rating on Cisco.

PRICE ACTION: In morning trading, Cisco added 0.2% to $34.11 per share and Ericsson fell 1.4% to $6.44. Even accounting for today's decline, Ericsson shares are up about 25% over the last three months.