Alcatel and Lucent Technologies, two leading equipment providers to the IT and telecoms industries, are discussing a potential merger.
The two are seeking opportunities in each other's markets
The French and the US firms confirmed they were in talks but said there was no guarantee a deal would go ahead.
Between them, the two firms employ almost 90,000 staff and have revenues of more than $22bn (£12.6bn).
Analysts said a deal may be worth $33bn and could trigger further consolidation in the IT and telecoms systems sector.
Analysts said a deal would offer Alcatel greater scope for US expansion, while offering Lucent more opportunities in Europe.
"We can confirm that Lucent and Alcatel are engaged in discussions about a potential merger of equals," the companies said in a statement.
But they added: "There can be no assurances that any agreement will be reached or that a transaction will be consummated."
Paris-based Alcatel is one of France's leading telecoms suppliers, servicing internet service providers and broadband providers.
It employs 58,000 staff in 130 countries and generated sales of 13.1bn euros ($15.6bn; £9bn) last year.
Lucent, which is headquartered in New Jersey, has more than 30,000 employees and sales of $9.4bn.
The firm, which used to be part of US telecoms giant AT&T, suffered severe financial problems after the tech bubble burst in 2001.
The two companies held tentative talks about a $23bn merger in 2001 but the discussions came to nothing.