Nokia's ( NOK ) bid to buy U.S. optical networking gear maker Infinera in a $2.3 billion deal has the Finnish company investing billions of dollars in data centers to meet the rise of artificial intelligence. is on the way to benefit from
The deal will help Nokia leapfrog Ciena and become the second-largest vendor in the optical networking market with a 20% share behind Huawei, which is benefiting from the minimal presence of Western companies in China. Is.
Telecom gear makers, struggling with low sales of 5G equipment, are looking for ways to diversify their markets and move into growing areas like AI.
Nokia's move will allow the company to sell more devices to tech giants such as Amazon, Alphabet and Microsoft as they invest billions of dollars in building new data centers to boost artificial intelligence.
“It's a pretty good time for this kind of deal when you're timing it before the market recovery starts,” Nokia CEO Pekka Lundmark said in an interview with Reuters.
AI is a major driver of investment.
“AI is making significant investments in data centers … A key focus of this acquisition is that it significantly increases our exposure to data centers,” he said.
Data centers use optical transport networks – cables made of glass that carry digital signals – to allow electronic devices to talk to each other.
Infinera is particularly strong in intra-data center communications, which refers to server-to-server communications within data centers. Lundmark said it will be one of the fastest growing segments in the overall communications technology market.
Nokia shares rose 4 percent in morning trade, indicating that shareholders are upbeat about the deal. Buyers' share price will generally ease due to the reduction in cash and stock deals.
Nokia, which will pay 70 percent of the purchase price in cash and the rest in stock, expects to save 200 million euros ($213.88 million) in costs after the deal closes next year.
Dansk Bank Credit Research analyst Mads Rosendal said that while the purchase multiple may be a bit high because Infinera's growth rate was high, if Nokia can raise 200 million euros in synergies, the purchase price could be higher. It will be valid.
Lundmark said Infinera gets about 60% of its business from the US, while Nokia had a larger share in Europe and Asia, making it a complementary transaction.
“The two businesses combined have combined cost of sales of more than 2 billion euros and operating expenses of more than one billion euros … so compared to that target, 200 million (euros) is not a significant threshold,” Lundmark said. is,” Lundmark said, adding that it was too early to comment on potential layoffs.
($1 = 0.9351 Euro)
(Reporting by Supantha Mukherjee in Stockholm; Editing by Rose Russell)