Nokia moves to purchase InfineraAn influx of billions of dollars in investments is expected for Finnish Company through a $2.3 billion deal with information Center as the reason behind it.
This deal positions Nokia to overtake Ciena and become the second largest supplier of optical network equipment. With a 20% market share after Huaweithanks to Western companies low presence in China.
Telecommunication gear manufacturers have struggled with falling sales of 5G devices, trying to diversify their offering so that they could enter growth areas like AI.
By doing so Nokia will be able to sell more devices to big tech firms like AmazonAlphabet and Microsoft is ploughing billions into new data centres to address the artificial intelligence boom.
“This would definitely be the ideal time,” said Pekka Lundmark, Chief Executive Officer at Nokia, in an interview with Reuters, “if you are going to do this kind of a deal, before markets recover.”
“AI is driving massive investments in data centers… One of our attractions this acquisition is that we are raising our investments on data centers,” he added.
Digital signals are carried within these cables made out of glass. Known as optical transmission networks used by data centers for sending messages between electronic devices.
Within the domain of intra-data center communication (meaning server-to-server communications inside a data center), Infinera has very strong capabilities.” Lundmark explained how it could be one among the fastest growing areas in entire communications technology industry.
The stocks of Nokia rose by 4 percent during early morning trading suggesting investor optimism about the deal. The buyer’s stock price usually falls due to dilution resulting from cash-and-stock deals.
In cash payments Nokia will put up 70%of purchase price while remaining amount shall be paid in form shares hoping. That it can achieve cost savings worth 200 million euros ($213.88 million) when this transaction concludes next year.
Accordingly, Mads Rosendal, a Credit Research Analyst at Danske Bank commented that although the acquisition multiple may be slightly high given Infinera’s unstable revenue base. Once Nokia achieves synergies amounting to €200m it will have been worth it.
Lundmark added that about 60% of Infenera’s revenue comes from the US. While for Nokia has more coverage in Europe and Asia thus making it a complementary deal.
Lundmark stated “The two companies together have sales expenses in excess of €2bn. And operating costs to boot… so 200 million euros is not really that large an amount in this context.” He however cautioned against early talks about possible layoffs.
