Nokia Siemens Networks to sell optical network hardware business to Marlin Equity Partners

Nokia Siemens Networks is getting out of the optical network hardware business. The company says it has agreed to sell the unit to Marlin Equity Partners and focus on mobile broadband. Terms of the deal were not disclosed.

Marlin Equity Partners, a private investment firm with more than $1 billion in assets, intends to operate the business as an independent company. According to a press release announcing the deal, Marlin Equity partners will form a new Munich-based company that “intends to act as a consolidator, building an industry leader in the fragmented optical networking sector.” The new will be led by its existing management team; Herbert Merz has been nominated as chief executive officer. As many as 1,900 employees – mainly in Germany, Portugal, and China – from the optical business unit and related functions are expected to transfer to the new company.

“We are making a major commitment to this sector, and have significant capital under management that we intend to use as a catalyst for consolidation,” said Nick Kaiser, a co-founder and partner at Marlin Equity Partners.

This is Marlin Equity Partner's second recent purchase in the fiber-optic network hardware space. The company announced in October plans to purchase the intelligent bandwidth management business of Sycamore Networks (see "Sycamore Networks shutting down, sells optical business for $18.75M"). Marlin Equity Partners didn't indicate whether it plans to combine its two new assets into one company, but it would appear to make sense.

For its part, Nokia Siemens Networks will turn its attention full-time to the mobile broadband space. “During 2012 Nokia Siemens Networks has made tremendous progress in the transformation of our company to being the world’s mobile broadband specialist. Our strategic focus on our core markets has enabled us to concentrate our energy and investment in areas such as LTE where we have strengthened our global leadership position,” said Rajeev Suri, Nokia Siemens Networks CEO. “This transaction builds on that momentum and aims to provide a new home for the optical networks business with the focus, resources, and strategic flexibility to address the opportunities in the optical market.”

The transaction isn’t a surprise, according to Dana Cooperson, leader of market research and consulting firm Ovum’s Network Infrastructure Telecoms practice. “When Nokia Siemens Networks announced its updated strategy about a year ago it said it was focusing its business on mobile broadband but needed to keep its optical group as a complement. This struck Ovum as odd: Its strongest position in optical (it’s ranked 10th globally in the $14.9B market with just under $500M annual sales) is in the network core, where there is little connection with MBB,” she said via a statement Ovum released this morning. “Furthermore, NSN’s optical business has been slipping for years with no clear plan to improve; it has not done the kind of fundamental R&D that its main competitors (e.g., Alcatel-Lucent, Ciena, Cisco Systems, Huawei Technologies) are doing.”

Meanwhile, the new company will be embarking on a journey across rough waters, Cooperson adds. “Competition in the market is keen; margins are under constant pressure,” she said. “Competitors will take advantage of this ownership change and related confusion to gain any advantage in NSN’s accounts. Marlin’s goal may be to sell the optical business to another vendor, for example Juniper Networks.”

The transaction is expected to close in the first quarter of 2013.

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