Acquisitions are generally supposed to help corporations expand and grow. In the case of Nokia Oyj (NYSE: NOK), the fresh acquisition of Infinera Corp. (NASDAQ: INFN) for its optical networking solutions and advanced optical semiconductors better help Nokia add some rekindled growth ahead. There may be a mixed review from analysts on Wall Street about this deal. The Oggonomics view is that this deal will not move the needle enough for Nokia’s long-term investors.
Nokia’s long-term investors have a history of being gluttons for punishment. Investors should not discount the undeniable fact that Nokia has disappointed its long-term investors year after year. This $2.3 billion merger is versus Nokia’s $20 billion market cap. It just seems unlikely to drastically help Nokia’s long-term growth prospects.
Please understand that Oggonomics’ own rationale of not moving the needle (enough) actually comes from Nokia’s own synergies forecasts. However each investor wants to view Nokia is up to them, and in no way should this be construed as investment advice.
What Nokia Says…
Nokia said up front that the deal is targeting net comparable operating profit synergies of 200 million euros by 2027. Nokia expects the deal to be accretive to its comparable operating profit and earnings per share in year-1. And it expects the Infinera deal to deliver over 10% comparable earnings (EPS) accretion in 2027.
Nokia’s own commentary said the deal will increase the scale of its Optical Networks business by 75%. The problem (see below) is that customers may press back when suppliers get too much scale. The good news is that the “at least 70% cash” deal is being financed by Nokia’s cash on hand.
Strategic Bull or Strategic Nothing?
This just doesn’t move the needle enough here for a $20 billion company. The Oggonomics view is that hopeful turnaround investors waiting for Nokia’s “Ah Ha” moment are going to have to keep waiting. The analyst community collectively sees Infinera’s standalone revenues growing about 10% in 2025 to about $1.7 billion. Again, Nokia is a $20 billion company.
JPMorgan Thinks It Makes Industrial Sense!
JPMorgan, which has only a Neutral rating on Nokia, has issued a note saying this acquisition makes industrial sense. The report cited a lack of scale in this market and lower margins versus other segments in the communications equipment markets. As such, the post-acquisition Nokia would become #2 or #3 in this segment. JPMorgan also believes the deal will helps Nokia diversify customers beyond service providers. Another plus is that it will allow Nokia’s optical business to improve its U.S. market position.
BofA Sees Little Help
BofA Securities, which also carries only a Neutral rating for Nokia, is somewhat cautious on the proposed Infinera acquisition. The firm cited a high price tag valuing Infinera at 10.6x EV/EBITDA, versus Nokia’s own 4.8-times EBITDA multiple. The firm sees the optical market as competitive, cyclical and as a less “sticky” market. And outside of the U.S., the optical market is considered highly fragmented with competition from Japan and China. BofA also points out that telecom equipment M&A rarely works because customers usually want more suppliers when the suppliers want more scale.
The Long-Term Stock Disappointment
Nokia may not be alone in the club of many former technology giants which have floundered. Nokia’s ADSs are down almost 40% from its peak in 2021. The ADSs are also down 55% over the last 10 years. And the last time it was a $10 stock was back at the start of 2011 — and it’s not even worth noting Nokia’s ADSs were challenging $40 back in 2007.
Result of Many Acquisitions
Nokia has a long list of acquisitions in its corporate history dating back to the year 2000. Nokia rolled up the merged operations of Alcatel-Lucent, some wireless infrastructure assets of Motorola, Navteq, and a slew of other companies and technologies. In the end, has it mattered for long-term shareholders?
