Nokia’s bid to buy U.S. optical networking equipment maker Infinera in a $2.3 billion deal puts the Finnish company on track to cash in on the billions of dollars in investment pouring into data centers to meet the rise of artificial intelligence.
The deal would help Nokia leapfrog Ciena to become the second largest supplier in the optical network market with a 20% share, behind Huawei, which benefits from the minimal presence of Western companies in China.
Telecom equipment makers, struggling with lower sales of 5G equipment, are looking for ways to diversify their markets and enter growing areas such as AI.
Nokia’s move will allow the company to sell more equipment to tech giants such as Amazon, Alphabet and Microsoft as they invest billions of dollars in building new data centers to service the artificial intelligence boom.
“This is quite an optimal moment for a deal of this nature when you time it just before the market is expected to start recovering,” Nokia CEO Pekka Lundmark said in an interview with Reuters.
“AI is driving significant investment in data centers … one of the key attractions of this acquisition is that it significantly increases our data center exposure,” he said.
Data centers use optical transmission networks – cables made of glass that carry digital signals – to allow electronic devices to communicate with each other.
Infinera is particularly strong in intra-data center communication, which refers to communication between servers within data centers. This will be one of the fastest growing segments of the entire communications technology market, Lundmark said.
Nokia shares rose 4% in morning trading, signaling that shareholders are optimistic about the deal. The buyer’s share price would normally decrease due to dilution in the cash and stock deal.
Nokia, which will pay 70% of the purchase price in cash and the rest in stock, expects to save 200 million euros ($213.88 million) in costs after the deal closes next year.
While the multiple purchase could be somewhat large because Infinera has had an uneven growth trajectory, if Nokia could extract 200 million euros in synergies, then the purchase price would be justified, said Mads Rosendal, an analyst at Danske Bank Credit Research.
Infinera gets about 60% of its business from the United States, while Nokia had a larger share in Europe and Asia, making it a complementary transaction, Lundmark said.
“The two companies together have combined sales costs of over 2 billion euros and operating costs of over 1 billion euros … so relative to that target, 200 million (euros) is nothing special,” Lundmark said, adding that it was too early. comment on potential layoffs.
© Thomson Reuters 2024
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