Nokia takes advantage of AI boom by buying Infinera for $2.3 billion

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Nokia’s deal to buy U.S. optical networking gear maker Infinera for $2.3 billion is likely to allow the Finnish company to benefit from billions of dollars of investment being made in data centers to develop artificial intelligence.

The deal will help Nokia overtake Ciena to become the second-largest vendor after Huawei with a 20% share in the optical networking market, which benefits from the minimal presence of Western companies in China.

Telecom equipment makers, grappling with slow sales of 5G equipment, are looking for ways to diversify their markets and enter growing areas such as AI.

Nokia’s move will give the company an opportunity to sell more equipment to big technology companies like Amazon, Alphabet and Microsoft, as these companies are investing billions of dollars in building new data centers to fuel the boom in the field of artificial intelligence.

“This is the most appropriate time for a deal like this, when you are doing it just before the market recovers,” Nokia CEO Pekka Lundmark said in an interview with Reuters.

“AI is driving significant investments in data centres… One of the key highlights of this acquisition is that it significantly increases our exposure to data centres,” he said.

Data centers use optical transport networks — cables made of glass that transmit digital signals — to allow electronic devices to communicate with one another.

Infinera is particularly strong in intra data center communications, which refers to server-to-server communications inside a data center. Lundmark said this will be one of the fastest growing areas in the overall communications technology market.

Nokia shares rose 4% in morning trade, indicating shareholders are excited about the deal. Buyers’ share price typically goes down because of dilution in a 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.

Although the purchase price may be somewhat high because Infinera’s growth path was irregular, if Nokia makes a profit of 200 million euros the purchase price would be justified, said Mads Rosendal, analyst at Danske Bank Credit Research.

Lundmark said Infinera gets about 60% of its business from the United States, while Nokia has a larger share in Europe and Asia, making it a complementary transaction.

“The combined cost of sales of the two businesses is more than 2 billion euros and operating expenses are more than a billion euros … so 200 million (euro) is not a specific target against that target,” Lundmark said, adding that it was too early to comment on potential layoffs.

© Thomson Reuters 2024


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