Nokia capitalizes on AI boom, buys Infinera for $2.3 billion

Nokia’s $2.3 billion offer to buy U.S. optical networking equipment maker Infinera puts the Finnish company on track to profit from billions of dollars in data center investments to cater to artificial intelligence developments.

The deal will help Nokia overtake Ciena to become the second-largest provider in the optical networking market, with a 20 percent share, behind Huawei, which benefits from the minimal presence of Western companies in China.

Telecommunications equipment manufacturers, struggling with declining sales of 5G equipment, are looking for ways to diversify their markets and enter emerging areas such as artificial intelligence.

The move will allow Nokia to sell more equipment to big tech companies like Amazon, Alphabet and Microsoft, which are investing billions of dollars to build new data centers to handle growing demand for artificial intelligence.

“It’s a pretty optimal time for a deal like this to be done right before the market is expected to recover,” Nokia CEO Pekka Lundmark said in an interview with Reuters.

“Artificial intelligence is driving significant data center investments… one of the key benefits 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 communicate with each other.

Infinera is particularly strong in intra-data center communications, which refers to server-to-server communications inside data centers. It will be one of the fastest-growing segments in the overall communications technology market, Lundmark said.

Nokia shares rose 4% in morning trading, signaling that shareholders are optimistic about the deal. Buyers’ share price would typically fall due to dilution in a cash-and-stock deal.

Nokia, which will pay 70% of the purchase price in cash and the rest in stock, expects to save 200 million euros ($213.88 million) in costs when the deal closes next year.

The purchase price may be a bit too high, says Mads Rosendal, an analyst at Danske Bank Credit Research, as Infinera has had an unstable growth trajectory. However, if Nokia manages to get 200 million euros in synergies, then it will be justified.

Infinera gets about 60% of its business from the United States, while Nokia has a larger share in Europe and Asia, making the deal complementary, Lundmark said.

“The combined selling costs of both companies are over €2 billion and the operating costs are over €1 billion… so compared to this target, €200 million (euro) is not too much,” Lundmark said, adding that it was too early to comment on potential layoffs.

(This story has not been edited by NDTV staff and is auto-generated from a feed.)

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