Shares of Alcatel-Lucent ALU rose another 2.6% in the last trading session, as its integration plans with Nokia Corporation NOK took firmer shape. The board of directors of the two companies unanimously approved two services agreements that will kick-start their integration plans.
The telecom giant officially took control of rival Alcatel-Lucent recently, in a $16.6 billion all-stock deal, which was first announced in April last year. Both companies are betting that the combined company will be strongly positioned to compete in the global race for scale and market share in the telecommunications and internet gear business.
Per analysts, both companies have complementary strengths: while Alcatel-Lucent is recognized for its routers and other equipment that is used to make broadband networks, Nokia specializes in wireless networks.
The merger will fortify Nokia’s competitive position as it contends with Sweden's Ericsson and China's Huawei in the telecom network gear market, in which players are facing pricing pressures due to intense competition and restricted growth. The market is rapidly consolidating in the face of stagnating demand for wireless-network equipment, and companies are clamouring to find cheaper and quicker ways to transfer data in their systems.
However, the deal will unlock definite economies of scale, creating a European champion with combined annual revenues crossing €25 billion. Nokia plans to cut down the operating costs of the combined entity by about €900 million by 2019, while also decreasing interest costs by €200 million.
In addition, Alcatel-Lucent’s relative advantage in IP-based products, optical networking, cloud computing/software-defined networking, fixed broadband network and professional services will lend significant strength to Nokia’s portfolio. Also, Nokia will be able to leverage Alcatel-Lucent’s strong foothold in China as well as its veritable client list, which includes Verizon Communications Inc. VZ and AT&T Inc. T.
The core focus areas for the combined entity are likely to be next-generation 5G wireless technology, IP and software, defined networking, cloud-based solutions, big data analytics, and sensors and imaging. Also, the merged entity can effectively leverage the emerging Internet of Things (IoT) platform and will be able to deliver competent triple-play voice, video and data solutions globally.
Alcatel-Lucent and Nokia both currently carry a Zacks Rank #3 (Hold).
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