Nokia Acquires Infinera. Does it Benefit You?
Optical Networking Industry
On paper, the $2.3 billion deal appears to be a win-win. Nokia has a strong market presence in Europe and Asia-Pacific, while Infinera’s home turf is the US. Infinera’s pluggable transceivers are well positioned in data centers, while Nokia’s optical line systems (OLS) have a significant installed base with telecom operators and service providers. The combined business would account for 20% of the global optical networking market, making it second to Huawei and on par with Ciena.
“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,” said Pekka Lundmark, CEO of Nokia.
Shareholders may be poised to benefit financially, but how about service providers and enterprises that deploy and operate optical networks? Will Nokia ‘pass on the savings’ to its customers?
Vendor Lock-In
Industry consolidation can be a good thing. Weaker and non-competitive vendors are weeded out, leaving a handful of stronger vendors to thrive. But the flip side of this is vendor lock-in: it’s already difficult to introduce new vendors into an optical network. The fewer the choices there are, the more customers become locked-in to their current supplier. And the larger your supplier is, generally the stronger their negotiating position is, the longer it takes to get feature requests onto their roadmap, and the harder it is to get their attention.
Will History Repeat Itself?
Besides size, geography plays a role in this acquisition. This deal effectively takes an American supplier out of the equation, with key decisions now made or approved by headquarters in Europe. Is history repeating itself? In 2006, France-based Alcatel acquired Lucent Technologies (home of Bell Labs, which has produced 10 Nobel Prize winners), the sole top tier American telecom supplier at the time. That deal made sense in an era of deregulation and rapid globalization.
But the acquisition did not go as planned. After six consecutive quarters of losses and its stock price tumbling by half, CEO Patricia Russo (from Lucent) and Chairman Serge Tchuruk (from Alcatel) resigned in July 2008. Differences between American and French business cultures were widely cited as a key reason for the failure. The New York Times described “a trans-Atlantic culture clash” and Nomura financial analyst Richard Windsor said, “We hope that a new CEO will be able to bridge the cultural divide between the Americans and the French and get all sides pulling together.” Alcatel-Lucent did not manage to turn a profit until 2011. Due to product overlap and financial pressures, several products and product lines (plus related staff) were discontinued or sold off. In 2016, it was acquired by Nokia.
Open Networks
Interoperability means that even when you mix and match equipment in your network from different vendors, it works. Take Wi-Fi as an example: your routers, range extenders, mobile phones, and smart home devices all come from different vendors, but they all communicate over Wi-Fi and work together (well, for the most part).
For optical networks, multi-vendor interoperability is driven by industry standards and associations such as MSA (multi-source agreements) for transceivers and OpenROADM for optical nodes. They increase the number of qualified suppliers, and thus help to drive down costs and prevent vendor lock-in. However, this deal may potentially increase vendor lock-in by reducing the supply of optical modems, chipsets and components available to the industry. Infinera supplies its parts to other vendors, but Nokia and Ciena do not, as they have vertically integrated business models. Only time will tell whether Nokia continues to supply Infinera parts to other vendors, or decides to only supply itself and enhance its competitive advantage.
The XKL Approach
XKL is an American optical networking vendor headquartered in Redmond, WA. We focus on delivering easy-to-deploy, “set and forget” DWDM solutions because reliability is the name of the game at layer 1 of the network. We don’t over-engineer the link or network, and we provide sensible upgrade paths as higher speeds or capacity are needed. Our business model is not to dominate the optical networking industry globally – we just enjoy engineering challenges and solving problems in a smart, responsible way.
Sound like the approach for you? Contact us to set up a call with our DWDM experts.
References
https://www.nytimes.com/2008/07/30/business/worldbusiness/30alcatel.html