Nokia is set to purchase Infinera, a supplier of optical network solutions and optical semiconductors, at an enterprise value of $2.3 billion.
The transaction represents a premium of 28 percent to Infinera’s share price at the close of 26 June 2024.
Nokia will pay 70 percent of the deal money in cash. Infinera’s shareholders can elect to receive up to 30 percent of the consideration in Nokia ADSs.
Nokia has generated annual revenue of EUR 1.942 billion from its optical network business in 2023. Nokia’s total sales were EUR 22.258 billion in 2023. Infinera clocked its annual revenue of $1.6 billion last year. Nokia yesterday sold Alcatel Submarine Networks Business which generated annual sales of EUR 1.12 billion to French State.
The acquisition of Infinera aligns with Nokia’s strategy. Finland-based Nokia aims to strengthen its technology leadership in optical and increase exposure to webscale customers such as Meta Platforms, Google, Microsoft, among others.
The optical network market size is forecast to grow from $5.72 billion in 2023 to $8.59 billion by 2031, growing at a CAGR of 4.62 percent during the forecast period, according to a report from SkyQuest Technology.
The acquisition of Infinera is projected to accelerate Nokia’s target to achieve double-digit operating margin in its optical networks business. Nokia targets to achieve EUR 200 million of operating profit synergies by 2027.
This purchase of Infinera and the sale of Submarine Networks business will create a reshaped Network Infrastructure that includes fixed networks, IP networks and optical networks. Nokia targets mid-single digit growth for the network infrastructure business and to improve its operating margin to mid-to-high teens level.
Nokia has achieved sales revenue of EUR 8.037 billion from its Network Infrastructure business in 2023. Nokia’s operating margin from Network Infrastructure business in 2023 was 13.1 percent.
Pekka Lundmark, President and CEO of Nokia, said: “In 2021 we increased our investment in Optical Networks with a view to improving our competitiveness. That decision has paid off and has delivered improved customer recognition, strong sales growth and increased profitability.”
Federico Guillen, President of Network Infrastructure at Nokia, said: “This acquisition will further strengthen the optical pillar of our business, expand our growth opportunities across all our target customer segments and improve our operating margin.”
The acquisition of Infinera will increase the scale of Nokia’s Optical Networks business by 75 percent, enabling it to accelerate its product roadmap timeline and breadth; providing better products for customers.
The Nokia-Infinera business will have significant in-house capabilities, including an expanded digital signal processor (DSP) development team, expertise across silicon photonics and indium phosphide-based semiconductor material sciences, and competency in photonic integrated circuit (PIC) technology.
Nokia and Infinera have limited customer overlap. Infinera has a strong presence in the North America optical market, representing ~60 percent of its sales. Nokia has strong positions in APAC, EMEA and Latin America.
Nokia aims to diversifying its customer base and grow sales in enterprise, its second largest business. Nokia has generated EUR 2.282 billion revenue from its enterprise business in 2023. Internet content providers (webscale) make up over 30 percent of Infinera’s sales. Nokia’s sales revenue from communication service provider were EUR 17.652 billion last year.
Nokia’s acquisition of Infinera is expected to deliver EUR 200 million of operating profit synergies by 2027. Approximately one third of the synergies are expected to come from cost of sales due to supply chain efficiencies and the balance from operating expenses due to portfolio optimization and integration along with reduced product engineering costs and standalone entity costs.
Baburajan Kizhakedath
