Source – Gadgets 360
Nokia (NOK) is set to acquire US optical networking gear maker Infinera in a $2.3 billion deal. This strategic move positions the Finnish company to capitalize on the significant investments pouring into data centers, driven by the rise of artificial intelligence (AI). The Infinera acquisition is expected to make Nokia the second-largest vendor in the optical networking market, with a 20% share, trailing only Huawei.
Diversifying in the Wake of 5G Slowdown
Telecom equipment manufacturers, including Nokia, have faced declining sales in 5G equipment and are now seeking to diversify into burgeoning markets like AI. Infinera acquisition will enable Nokia to enhance its offerings to major tech companies like Amazon, Alphabet, and Microsoft, who are investing heavily in new data centers to support the AI boom.
“This is pretty optimal timing for a deal of this nature when you are timing it just before the market is expected to start to recover,” Nokia CEO Pekka Lundmark stated in an interview with Reuters.
AI: A Major Investment Driver
Lundmark highlighted the significant investments AI is driving in data centers, with optical transport networks playing a crucial role. These networks use glass cables to transmit digital signals between electronic devices, essential for server-to-server communications within data centers. Infinera’s strength in this area, particularly in intra-data center communications, makes it a valuable acquisition for Nokia.
“One of the key attractions of this Infinera acquisition is that it significantly increases our exposure to data centers,” Lundmark added.
Nokia CEO Pekka Lundmark on the $2.3 billion Infinera Acquisition
Market Reaction and Financial Outlook
Following the announcement, Nokia’s shares rose by 4% in morning trading, indicating investor confidence in the deal. Typically, a buyer’s share price might drop in a cash-and-stock deal due to dilution concerns, but Nokia’s shares reacted positively.
Nokia will finance 70% of the purchase price in cash, with the remaining 30% in stock. The company anticipates cost savings of 200 million euros ($213.88 million) post-acquisition, expected to close next year. Despite some concerns about Infinera’s uneven growth, the projected synergies justify the purchase price, according to Mads Rosendal, an analyst at Danske Bank Credit Research.
Complementary Strengths and Future Plans
Infinera generates about 60% of its revenue from the United States, whereas Nokia has a larger presence in Europe and Asia. This geographical complementarity enhances the strategic value of the Infinera acquisition.
“The two businesses together have combined cost of sales of over 2 billion euros and operating expenses of over a billion euros… so against that target, 200 million euros is not a particular stretch,” Lundmark noted, while also stating that it was too early to discuss potential layoffs.
By acquiring Infinera, Nokia aims to strengthen its position in the rapidly growing AI-driven data center market, ensuring it remains competitive and poised for long-term growth.
