Nokia's ambitious move to acquire US optical network equipment manufacturer Infinera represents a significant strategic step for the company. The acquisition enables the Finnish telecoms giant to take advantage of the growing investment in data centres driven by the rise of artificial intelligence and propel it to a high ranking ahead of its competitors.
Billion purchase
The purchase of Infinera (NASDAQ: INFN) is expected to take place next year in a deal valued at $2.3 billion. If Infinera's shareholders and the regulator approve the purchase, Nokia (HE: NOKIA) would significantly expand its presence in the optical networking market and increase its market share to 20%. It would overtake competitors in the form of Ciena (NYSE: CIEN) and fall behind Huawei, which currently dominates given the limited number of Western companies in the Chinese market. The acquisition is expected to boost device sales to tech giants such as Amazon, Alphabet and Microsoft, which are investing heavily in data center infrastructure.[1]
Strengthening its position
The purchase comes at a time when telecoms equipment manufacturers are facing a decline in sales of devices supporting the 5G network. Infinera's expertise in networking solutions can help Nokia accelerate product innovation, expanding its customer base to better meet the growing demand for optical networks powering data centers. In addition, this decision will strengthen Nokia's position, particularly in North America and the EMEA, Asia Pacific (APAC) and Latin America regions.
Financial outlook
According to Nokia's official press release, the transaction is to be in the form of cash and shares, or a combination of the two, with at least 70% in cash and the remaining in shares. The release also states the assumption of synergistic net comparable operating profit of up to €200 million ($214.7 million) by 2027 with earnings per share (EPS) growth of 10%. However, some analysts are of the opinion that the purchase multiple is high given Infinera's volatile growth.[2]
Stock Development
Despite innovations to its product portfolio and efforts to strengthen its position in global markets, the Finnish company's stock hasn't fared too well. The share price is hovering between the 5-year high of December 2021 and the 5-year low of March 2020, with a value of EUR 3.606 (U$3.87) as of July 2, 2024. The acquisition announcement also didn't make much difference to the stock's value, with Nokia shares up just over 1.5% on Friday, June 28, 2024, the day after the news was released. On the contrary, the information had a positive impact on Infinera, whose shares rose sharply by 15.8%. As of July 2, 2024, the price is at $6.165, but like Nokia, the value is hovering between a 5-year high and low.*
Performance of Nokia Oyj's share over 5 years in EUR. (Source: Investing.com)*
Performance of Infinera Corporation's share over 5 years in USD. (Source: Investing.com)*
Conclusion
The acquisition of Infinera is a strategic move for Nokia to leverage on the surge in data center investments driven by artificial intelligence. This expansion increases Nokia's market share and product portfolio and strengthens its position in the global optical networking market. For investors, this transaction signals Nokia's commitment to growth and innovation, which can enhance shareholder value and make it a more attractive investment in the technology sector.
* Past performance is no guarantee of future results.
[1,2] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment which is subject to change. Such statements are not guaranteeing of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.
