Nokia (NYSE: NOK) agreed to buy San Jose, CA-based optical networking systems manufacturer Infinera (NASDAQ: INFN) for $ 2.3 billion with 70 percent in cash, and 30 percent in Nokia shares. The transaction represents a premium of 28 percent to Infinera’s share price at the stock market close on Wednesday. Nokia confirmed it will accelerate its share buyback program to offset the dilution.
Nokia said the acquisition will grow its Optical Networks division by 75 percent. The company explains this expanded capability will enable it to accelerate its product roadmap and increase its exposure to webscale customers, such as cloud providers, content delivery networks, and hyperscale data centers, which account for around 30 percent of Infinera’s revenue.
At the end of 1Q24, Nokia’s global Optical Networks sales, which include optical transport and access (fiber-to-the-premise), were $369 million, down 35 percent on a year-over-year basis. Infinera’s 1Q24 sales were $307 million, down 22 percent YoY although total sales have grown at a six percent CAGR since 2019, mainly with U.S. webscale customers. The U.S. market accounted for 54 percent of Infinera’s sales in the quarter.
Nokia and Infinera see a significant opportunity in merging to improve scale and profitability. The companies expect the combined business to accelerate the development of new products and solutions to benefit customers. The transaction aligns with Nokia’s strategy, as it is expected to strengthen the company’s technology leadership in optical and increase exposure to webscale customers, particularly in the U.S. market.
For Nokia, this transaction, along with the recently announced sale of its Submarine Networks division, will reshape its Network Infrastructure business unit that comprises Fixed Networks, IP Networks and Optical Networks. Nokia is targeting mid-single digit organic growth for the overall Network Infrastructure business with operating margin in the mid-to-high teens range.
“The combined businesses have a strong strategic fit given their highly complementary customer, geographic and technology profiles,” comments Pekka Lundmark, Nokia President and CEO. “With the opportunity to deliver over 10 percent comparable EPS accretion, we believe this will create significant value for shareholders.”
David Heard, CEO of Infinera, says, “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.”
Pending regulatory and shareholder approval, the deal is expected to close during the first half of 2025.
By John Celentano, Inside Towers Business Editor
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