Nokia’s CEO explains why the $2.3 billion deal in the United States is significant

Network devices manufacturer Nokia accelerates its renewal with a major acquisition. The company buys the US semiconductor company Infinera, which specializes in optical networks, for 2.3 billion dollars, or 2.1 billion euros.

Managing director Pekka Lundmarkin according to the deal is significant for the company, because it contributes to reducing dependence on telecom operators’ investments. In addition to semiconductors, Infinera manufactures optical network equipment.

“The demand for optical networks will be increased especially by artificial intelligence and cloud services. . Infinera is very strong, especially in optical connections, which are needed in and between data centers,” says Lundmark.

Nokia has long been striving to increase the share of business customers in its sales. For business customers, Nokia means other than telecom operators.

Operators have postponed investments due to increased financing costs, which is why the demand for mobile phone network devices has shrunk, and no significant growth is on the horizon in the next few years.

Many telecom operators have already tuned their networks to be efficient enough that the need for investments has decreased, at least for the time being.

“All in all, even after this deal, the big strategic goal is to expand the customer base in such a way that the dependence on telecom operators gradually decreases,” says Lundmark.

By buying Infinera’s Nokia aims to strengthen its position among the technology giants that operate data centers. Examples include Microsoft, Amazon, Google and Meta.

“The market for optical networks has been weak last year and this year, but according to market forecasts and the estimates of our competitors, the market will start to grow next year. In our view, the timing of the deal is right, as we are buying Infinera just before the market starts to grow,” says Lundmark.

Nokia is offering one Infinera share at $6.65, which is 37 percent more than Infinera’s average share price over the past six months.

The deal will be financed from Nokia’s cash resources. The company’s net cash was 5.1 billion euros at the end of March

At least 70 percent of the purchase price will be paid in cash and a maximum of 30 percent in shares. Infinera shareholders can choose either cash, Nokia shares, or a combination thereof.

Infinera will be merged with Nokia’s network infrastructure business group, which in the future will focus on fixed networks and IP routers in addition to optical networks.

As a result of the deal, Nokia estimates that the turnover of the network infrastructure will increase annually by 4–6 percent, and the operating profit percentage, which measures profitability, will be 14–18 in the future.

Trade enables the faster development of new products and solutions to the market and strengthens the company’s technological leadership. Nokia’s market share in optical networks will increase to 20 percent, i.e. fairly close to the market leader Huawei. Its market share is 29 percent.

By buying Infinera, Nokia also increases its scale advantage.

“Our technology position has improved significantly over the past few years, but our scale has been too small to be able to invest sufficiently in all the different product development requirements.”

Managing director According to Lundmark, due to the deal, Nokia has the opportunity to improve its comparable earnings per share by at least ten percent by 2027.

The deal announced between Thursday and Friday is part of the company’s restructuring. On Thursday morning, Nokia announced that it would sell its submarine cable business to the French government for 350 million euros.

“Submarine cables are a different business than everything else we do, because it’s about cables laid by ships in the sea. We came to the conclusion that it is logical to give it up so that we can focus more on other areas.”

According to Nokia’s estimate, the Infinera transaction will result in cost benefits of 200 million euros when the separate operations of the companies are combined.

A third of the cost benefits should come from the reduction of procurement and manufacturing costs when the supply chain becomes more efficient. Two-thirds of the benefits come from operating costs, because the product range is changed, overlaps are eliminated, and product development and administrative costs are reduced.

“This synergy benefit goal of 200 million euros is not very ambitious when you look at what different companies have managed to achieve in similar business arrangements,” says Lundmark.

Nokia intends to keep his “eyes open” for possible acquisitions in the future.

“We will take a selective approach to business transactions in the future. On the other hand, this kind of business is never finished, so you have to keep your eyes open.”

Nokia aims to complete the Infinera transaction in the spring of next year.