Nokia to beef up optical unit with $2.3bn Infinera acquisition

Source: Nokia

Source: Nokia

  • Having just announced the sale of its submarine unit, Nokia is now looking to gain greater scale in the terrestrial optical market
  • The proposed acquisition of Infinera would combine two of the main players in the market and provide stronger competition to Ciena and Huawei
  • But at least one analyst believes combining Nokia and Infinera’s optical units will face “harmonisation” challenges

Nokia has agreed to acquire optical networking equipment giant Infinera in a US$2.3bn deal, as the vendor seeks to scale up its presence in the optical market, especially in the US.

Three months after media speculation claimed Infinera was potentially exploring a sale, among other options, confirmation of a definitive agreement came in the form of a joint statement from Nokia and Infinera.

The deal will see the Finnish vendor take over Infinera in a transaction with an enterprise value of US$2.3bn or US$6.65 per share (a premium of 28% to Infinera’s closing share price on 26 June).

The offer is made up of at least 70% cash and up to 30% in stock.

According to the two companies, the acquisition offers “a significant opportunity” to improve scale and profitability: Nokia claims it will increase its Optical Networks business by 75%, so that it can “sustainably challenge the competition” (Nokia has long been among the leaders in the optical equipment sector alongside Huawei, Ciena and Infinera).

Notably, the deal is set to put the combined business between Nokia and Infinera “in a strong position in all regions (excluding China)”.

Infinera says it has built a solid presence in the North America optical market, representing approximately 60% of its sales. According to Nokia, this will enhance its optical scale in the region, while complementing its “strong positions” in Asia Pacific, EMEA (Europe, Middle East and Africa) and Latin America.

Another benefit of the acquisition, according to Nokia, is the opportunity to accelerate its expansion into enterprise and to appeal more to what it dubs webscale customers (internet content providers), the fastest-growing segment of the optical market. It expects this segment to continue growing, helping the overall optical sector to increase from about $12bn currently to almost $16bn by 2029.

Based on the two companies’ 2023 revenues, the new entity will be a significant player with global revenues of €3.4bn.

The deal is expected to deliver more than 10% to overall profits in 2027 and to bring in a double-digit operating margin in Nokia’s Optical Networks business.

“We believe now is the right time to take a compelling inorganic step to further expand Nokia’s scale in optical networks. The combined businesses have a strong strategic fit given their highly complementary customer, geographic and technology profiles,” noted Pekka Lundmark, president and CEO of Nokia.

The president of Nokia’s Network Infrastructure business (which includes Optical Networks and two other pillars), Federico Guillén, said that the two companies “find the logic of combination irresistible” as it will “further strengthen the optical pillar of our business, expand our growth opportunities across all our target customer segments and improve our operating margin.”

Infinera’s CEO, David Heard, added that the combined company will have greater scale to address customer needs “at a time when optics are more important than ever” across telco networks, inter-datacentre applications and inside the datacentre itself.

Simon Leopold, investment analyst at Raymond James, stated in a note to clients that the deal will help Nokia “improve scale” in the optical networking equipment sector, which will help to boost margins. In addition, the merger makes sense from a market perspective as Nokia and Infinera “do not have much geographic or customer overlap,” and improved scale means Nokia would have a better chance of landing Huawei replacement deals. However, Leopold and his team believe there may be risks in the execution of the deal. “The vendors have distinct product architectures, and harmonisation might present a challenge,” noted the analyst.

The takeover, which has been approved by both Nokia’s and Infinera’s boards, is set to close in the first half of 2025, subject to approval by Infinera’s shareholders and regulators.

This is the second major announcement related to Nokia’s network infrastructure activities in just 24 hours: On Thursday, the vendor unveiled plans to exit the submarine networks market by divesting its Alcatel Submarine Networks (ASN) business to the French state for €350m – see Nokia offloads subsea unit for €350m.

- Yanitsa Boyadzhieva, Deputy Editor, TelecomTV

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