By Supantha Mukherjee
STOCKHOLM (Reuters) – Nokia (HE:)’s bid to purchase U.S. optical networking gear maker Infinera (NASDAQ:) in a $2.3 billion deal places the Finnish firm on observe to achieve from the billions of {dollars} in funding pouring into knowledge centres to cater to the rise of synthetic intelligence.
The deal would assist Nokia to leapfrog Ciena (NYSE:) and grow to be the second largest vendor within the optical networking market with a 20% share, behind Huawei, which is benefiting from the minimal presence of Western corporations in China.
Telecom gear makers, battling decrease gross sales of 5G tools, have been on the lookout for methods to diversify their markets and get into rising areas equivalent to AI.
Nokia’s transfer will permit the corporate to promote extra tools to massive tech corporations equivalent to Amazon (NASDAQ:), Alphabet (NASDAQ:) and Microsoft (NASDAQ:) as they make investments billions of {dollars} in constructing new knowledge centres to service the synthetic intelligence growth.
“That is fairly optimum timing for a deal of this nature when you’re timing it simply earlier than the market is anticipated to begin to get well,” Nokia CEO Pekka Lundmark mentioned in an interview with Reuters.
“AI is driving important investments in knowledge centres … one of many key sights of this acquisition is that it considerably will increase our publicity to knowledge centres,” he mentioned.
Information centres use optical transport networks – cables fabricated from glass that transmit digital indicators – to permit digital units to speak to one another.
Infinera is very sturdy in intra knowledge centre communications, which refers to server-to-server communications inside knowledge facilities. This can be one of many quickest rising segments within the general communications expertise market, Lundmark mentioned.
Nokia shares rose 4% in morning commerce, signaling that the shareholders are bullish in regards to the deal. The share worth of patrons would sometimes ease resulting from dilution in a cash-and-stock deal.
Nokia, which pays 70% of the acquisition worth in money and the remaining in inventory, expects to save lots of 200 million euros ($213.88 million) in prices following the deal’s closure subsequent yr.
Whereas the acquisition a number of could also be considerably steep as Infinera had a lumpy progress trajectory, if Nokia may extract the 200 million euros in synergies, then the acquisition worth can be justified, mentioned Mads Rosendal, analyst at Danske Financial institution Credit score Analysis.
Infinera will get about 60% of its enterprise from the USA, whereas Nokia had a much bigger share in Europe and Asia, making it a complementary transaction, mentioned Lundmark.
“The 2 companies collectively have mixed price of gross sales of over 2 billion euros and working bills of over a billion euros … so towards that focus on, 200 million (euros) is just not a selected stretch,” Lundmark mentioned, including that it was too early to touch upon potential layoffs.
($1 = 0.9351 euros)
