Nokia reached a deal to acquire Infinera for $2.3 billion, a move that will further solidify its bond with content providers and gain a greater foothold in the North American optical networking market.
Under the terms of the agreement, Nokia is acquiring Infinera for $6.65 per share. All Nokia shares will be issued as American Depositary Shares.
The acquisition has received unanimous approval from both Nokia and Infinera’s boards of directors. After meeting customary shareholder, regulatory approvals including antitrust, CFIUS and other foreign direct investment approvals, the acquisition is set to close during the first half of 2025.
Oaktree Optical Holdings, which owned approximately 11% of Infinera common stock as of 27 June 2024, has agreed to vote their shares in favor of the transaction.
Pekka Lundmark, president and CEO of Nokia, said the acquisition is part of a broader plan to grow its optical network business.
“In 2021, we increased our organic investment in Optical Networks to improve our competitiveness,” he said in a statement. “That decision has paid off and has delivered improved customer recognition, strong sales growth and increased profitability. We believe now is the right time to take a compelling inorganic step to expand Nokia’s scale in optical networks further.”
Improving scale, profitability
The two companies said that they see a “significant opportunity” in merging to improve scale and profitability, enabling the combined business to accelerate the development of new products and solutions that benefit customers.
Nokia sees its pending purchase of Infinera, along with the recently announced sale of its submarine networks unit, as an opportunity to create a reshaped Network Infrastructure built on three pillars: Fixed Networks, IP Networks, and Optical Networks. Nokia targets mid-single-digit organic growth for the overall Network Infrastructure business and improves its operating margin to mid-to-high teens.
Nokia expects the acquisition to increase its Optical Networks business' operating margin to double-digits. By 2027, Nokia aims to achieve EUR 200 million of net comparable operating profit synergies.
In North America, the acquisition of Infinera immediately enhances Nokia’s customer base. Because the two companies have limited customer overlap, the combined business is in a strong position in all regions (excluding China). Infinera has built a solid presence in the North American optical market, representing over 60% of its sales, which will improve Nokia’s optical scale in the region and complement Nokia’s strong positions in APAC, EMEA, and Latin America.
“Based on my 2023 figures for the Optical Transport market, I calculate that the combination of Nokia and Infinera would have 20% of the global optical market, giving them the second highest vendor share,” said Jimmy Yu, VP at Dell’Oro.
Expanding enterprise, webscale reach
While the acquisition of Infinera will certainly bolster Nokia’s ability to gain a more significant foothold in more Tier 1 service provider customers, particularly in North America, the deal also accelerates the company’s expansion into enterprise and webscale.
The company expects these two businesses will accelerate its strategic goal of diversifying its customer base and growing in enterprise. As Nokia typically calls this segment, Internet content providers (ICP or webscale) make up over 30% of Infinera’s sales.
As the combined company pursues more ICP and webscale opportunities, it will be able also effectively to address data center needs.
“We believe Nokia is an excellent partner and together we will have greater scale and deeper resources to set the pace of innovation and address rapidly changing customer needs at a time when optics are more important than ever – across telecom networks, inter-data center applications, and now inside the data center,” said David Heard, CEO of Infinera.
With recent wins in line and optical pluggable systems, Infinera has established a presence in this market. Infinera has also recently been developing high-speed and low-power optical components for use in intra-data center (ICE-D) applications, which are particularly suited to AI workloads and can become an attractive long-term growth opportunity.
Nokia expects the acquisition of Infinera to strengthen its technology leadership in optical and increase exposure to webscale customers, the market's fastest-growing segment.
“At a high level, this seems like a good acquisition for Nokia,” Dell’Oro’s Yu said. “It will give the company scale in the optical systems business, in-house indium phosphide (InP) photonic technology, fab, deeper presence with significant Internet content provider (ICP) customers, and more share of the North American market.”
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