The $16.6 billion acquisition of Alcatel-Lucent in an all-share deal 
will propel Nokia Corporation to take on Ericsson in the telecom infrastructure market. But Nokia will be behind Huawei.
Nokia and Alcatel-Lucent announce merger
On a FY 2014 combined basis, the proposed combined company called Nokia Corporation would have had net sales of $27.54 billion or EUR 25.9 billion.
Ericsson revenue up 1% to $8.19 bn in Q4 2014, net income dips 35%
Ericsson had clocked $27.47 billion or SEK 228 billion revenue in 2014. If we convert SEK 228 billion into dollar currently, the revenue of Ericsson would be $25.96 billion.
Huawei revenue up 21% to $46.5 bn, net profit up 33% to $4.5 bn in 2014
Huawei had generated $31 billion revenue from telecom carrier business making it the largest telecom network vendor in the world.
Risks ahead
Mark Newman, chief research officer, Ovum, one day before the official announcement, said: “A full merger would plunge both businesses back into a period of introspection and restructuring. It would create significant duplication in areas such as mobile broadband and small cells. Maintaining two different product portfolios and servicing existing customers would counteract the benefits of increased scale.”
Ovum says rationalizing the two product lines would be difficult, and dealing with French labor laws could limit what Nokia would want to do.
An asset acquisition would potentially give Nokia’s CEO Rajeev Suri the power to rationalize both companies’ assets quickly and much more efficiently than a more complicated merger.
Nokia and Alcatel Lucent’s combined share of total LTE contracts was 26 percent at the end of 2014, behind Huawei (36 percent) and Ericsson (33 percent).
For both Nokia and Alcatel-Lucent, the big challenge facing their businesses is the shift in value from hardware to software and the convergence of IT and telecoms technology. Both companies are still firmly anchored in network hardware. A merger of the two businesses will give them more scale but it will not create the software culture to compete in the IT-centric future.
Ovum’s opinion is that the telecoms infrastructure market is polarizing rapidly between the tier-1 vendors (Ericsson and Huawei) and specialists. The move to SDN/NFV may accelerate this as several CSPs may wish to partner with a single vendor who will act as a systems integrator. The acquisition of Alcatel-Lucent’s assets will propel Nokia to a tier-1 position and will open doors to much bigger, end-to-end contracts that have largely been exclusive to Ericsson and Huawei.
Ericsson CEO sensed Nokia deal?
Ericsson president and CEO Hans Vestberg, one day before the deal between Nokia and Alcatel-Lucent, reviewed the company’s stable financial performance for 2014 and discussed its Networked Society strategy.
Vestberg talked about the change in the business mix, with 66 percent of the company’s sales for 2014 coming from services and software – and what requirements are being placed on today’s networks in order to capture all the needs from its users.
Ericsson will be investing in IP networks, cloud, OSS/BSS, TV & Media, and Industry & Society – showed good progress during 2014 with sales growth above 10 percent.
It seems that the brand Alcatel-Lucent will disappear in phases. Indian born Rajeev Suri will be becoming the CEO of the new entity called Nokia Corporation. Will Alcatel-Lucent and Nokia announce more job cuts soon?
