Nokia to acquire Infinera for $2.3 billion, boosting optical network division size by 75%

Nokia has agreed to buy optical networking equipment vendor Infinera in a deal worth $2.3 billion. 70% of the sum will be paid in cash, the remaining 30% in Nokia shares. Nokia said it will accelerate its share buyback program to offset the dilution.

The acquisition will grow the size of its Optical Networks division by 75%, enabling the company to accelerate its product roadmap and increase its exposure to webscale customers, which account for around 30% of Infinera’s revenue.

Nokia and Infinera see a significant opportunity in merging to improve scale and profitability, enabling the combined business to accelerate the development of new products and solutions to benefit customers. The transaction aligns strongly with Nokia’s strategy, as it is expected to strengthen the company’s technology leadership in optical and increase exposure to webscale customers, the fastest growing segment of the market.

  • Creates a highly scaled and truly global optical business with increased in-house technology capabilities and vertical integration.
  • Strengthens Nokia’s optical position, specifically in North America.
  • Accelerates Nokia’s customer diversification strategy, expanding webscale presence.
  • Targeted net comparable operating profit synergies of EUR 200 million by 2027.

Nokia believes the transaction has compelling financial and strategic merit. The combination with Infinera is projected to accelerate Nokia’s journey to a double-digit operating margin in its Optical Networks business. Nokia targets to achieve EUR 200 million of net comparable operating profit synergies by 2027. This transaction along with the recently announced sale of Submarine Networks will create a reshaped Network Infrastructure built on three strong pillars of Fixed Networks, IP Networks and Optical Networks. Nokia targets mid-single digit organic growth for the overall Network Infrastructure business and to improve its operating margin to mid-to-high teens level.

The combined Nokia and Infinera will have a global market share of around 20%, broadly equal to Ciena (which acquired Nortel’s optical network division in November 2009 for $769 billion) but lagging behind Huawei’s 31%, according to J.P. Morgan analyst Samik Chatterjee.

“Ciena is less likely to make a competing bid given complexity in integrating competing optical portfolios as well as hurdles in regulatory approval given Ciena’s majority (51%) share of the North America market,” wrote Chatterjee in a research note.

Omdia (Informa) expects optical networking market sales to rise at a compound annual growth rate of 5% between now and 2029. A well-executed takeover may, then, give Nokia a growth story during a period of difficulty for its large mobile business group, responsible for about 44% of total sales last year.

The transaction is expected to be accretive to Nokia’s comparable EPS in the first year post close and to deliver over 10% comparable EPS accretion by 2027*, with a return on invested capital (RoIC) comfortably above Nokia’s weighted average cost of capital (WACC).

Pekka Lundmark, President and CEO of Nokia, said:

“In 2021 we increased our organic 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. We believe now is the right time to take a compelling inorganic step to further expand Nokia’s scale in optical networks. The combined businesses have a strong strategic fit given their highly complementary customer, geographic and technology profiles. With the opportunity to deliver over 10% comparable EPS accretion, we believe this will create significant value for shareholders.”

Federico Guillén, President of Network Infrastructure at Nokia, said: “Today, Network Infrastructure offers a unique portfolio across the fixed access, optical and IP networks domains built on leading technology innovation and a strong customer focus. 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. I am extremely pleased that we are bringing together these two talented and dedicated teams. Separately, we have long respected each other as competitors. Together, we find the logic of combination irresistible.”

David Heard, CEO of Infinera, said: “We are really excited about the value this combination will bring to our global customers. 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. This combination will further leverage our vertically integrated optical semiconductor technologies. Furthermore, our stakeholders will have the opportunity to participate in the upside of a global leader in optical networking solutions.”

Compelling strategic benefits for Nokia, Infinera and customers:

  • Improving global scale and product roadmap: The combination will increase the scale of Nokia’s Optical Networks business by 75%, enabling it to accelerate its product roadmap timeline and breadth; providing better products for customers and creating a business that can sustainably challenge the competition.
  • The combined 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 deeper competency in photonic integrated circuit (PIC) technology. The result will be a strong innovative player with a deep and diverse pool of optical networking talent and expertise.
  • Gaining scale in North America optical market: The two companies have limited customer overlap, putting the combined business in a strong position in all regions (excluding China). Infinera has built a solid presence in the North America optical market, representing ~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.
  • Building on Nokia’s commitment to investment in U.S. based manufacturing and advanced testing and packaging capabilities.
  • Accelerating Nokia’s expansion into enterprise and particularly webscale: The combination of these two businesses is also expected to accelerate Nokia’s strategic goal of diversifying its customer base and growing in enterprise. Internet content providers (ICP or webscale as Nokia typically calls this segment) make up over 30% of Infinera’s sales. With recent wins in line systems and pluggables, Infinera is well established in this fast-growing market. Infinera has also recently been developing high-speed and low-power optical components for use in intra-data center (ICE-D) applications and which are particularly suited to AI workloads which can become a very attractive long-term growth opportunity. Overall, the acquisition offers an opportunity for a step change in Nokia’s penetration into webscale customers.
  • Net comparable operating profit synergies of EUR 200 million: The combination is expected to deliver EUR 200 million of net comparable 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 remainder from operating expenses due to portfolio optimization and integration along with reduced product engineering costs and standalone entity costs. Nokia expects one-time integration costs of approximately EUR 200 million related to the transaction.
  • Creating value for shareholders: The transaction is expected to be accretive to Nokia’s comparable operating profit and EPS in year 1 and to deliver more than 10% comparable EPS accretion in 2027*. Nokia also expects the deal to deliver a return on invested capital (RoIC) comfortably above Nokia’s weighted average cost of capital (WACC). In addition, Infinera’s investors will have the opportunity to participate in the exciting upside of investing in a global leader in optical networking solutions.

Transaction details:
Under the terms of the definitive agreement, Nokia is acquiring Infinera for $6.65 per share, which equates to an enterprise value of $2.3 billion. For each Infinera share, Infinera shareholders will be able to elect to receive either: 1) $6.65 cash, 2) 1.7896 Nokia shares, or 3) a combination of $4.66 in cash and 0.5355 Nokia shares for each Infinera share. All Nokia shares will be issued in the form of American Depositary Shares. The definitive agreement includes a proration mechanism so that the Nokia shares issued in the transaction do not exceed an amount equal to approximately 30% of the aggregate consideration that may be paid to Infinera shareholders.



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One thought on “Nokia to acquire Infinera for $2.3 billion, boosting optical network division size by 75%

  1. Infinera realized $1.6 billion in sales last year and generates the bulk of its revenues (around 60%) in North America. With sales in 2023 of about €1.9 billion ($2 billion), Nokia’s optical unit, a part of its network infrastructure business group, does most of its business in other regions. Customer overlap is limited, it insists – presumably hoping any authorities worried about negative effects on competition get the message.

    Optical equipment sales at Nokia fell 35% in the recent first quarter, to €344 million ($368 million), a decline the company blamed on an unfavorable comparison with the lucrative year-earlier quarter, when there was a rebound after the supply chain constraints of 2022.

    Infinera’s first-quarter sales dropped 22%, to $307 million. CEO David Heard described it as “the bottom of a demand cycle.” Both vendors clearly expect improvements ahead.

    Besides strengthening Nokia’s optical position in North America, where it claims to be relatively weak, the Infinera takeover positions it for an anticipated wave of contracts with data center and so-called “webscale” customers – the paymasters of generative AI. Internet content providers, Nokia points out, today account for 30% of Infinera’s revenues.

    “AI is driving significant investments in data centers at the moment and one of the key attractions of this acquisition is that it significantly increases our exposure to data centers,” said Nokia CEO Pekka Lundmark on a call with reporters earlier today. Of particular interest seems to be Infinera’s expertise in intra-data-center connectivity, linking up servers within a single facility. This, said Lundmark, “will be one of the fastest growing segments in the overall technology communications market, and this is one of the most notable strengths that Infinera has.”

    Improved scale is another big rationale for buying Infinera, helping Nokia to accelerate product development and ratchet up the pressure on rivals. “We have both in a way been suffering from being a little bit too small in the market to be able to invest sufficiently in R&D to compete against the largest players in the market, which actually are Huawei and Ciena,” said Lundmark.

    “This will now deliver to us the scale needed to be able to invest sufficiently in R&D to be able to fully match the capabilities of the key competitors,” he added. Research by Omdia, a Light Reading sister company, gave Huawei about 29% and Ciena around 19% of the optical equipment market last year, with Nokia and Infinera on 12% and 8% respectively.

    The combined company will have a beefed-up development team for work on digital signal processors (DSPs) along with expertise in silicon photonics and other critical technologies in this field. Infinera’s assets in high-speed and low-power optical components, apparently suited to the needs of AI workloads, were an evident attraction for Nokia.

    The transaction values Infinera at a 28% premium to its closing share price on June 26 and comes in the same week Nokia sold its submarine networks business to the French state in a €350 million ($374 million) deal. “Combined with the recently announced sale of submarine networks, we have now reshaped our network infrastructure business group to ensure it is able to strengthen technology leadership, grow and improve profitability,” said Lundmark.

    Omdia expects optical networking market sales to rise at a compound annual growth rate of 5% between now and 2029. A well-executed takeover may, then, give Nokia a growth story during a period of difficulty for its large mobile business group, responsible for about 44% of total sales last year.

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