Nokia (NYSE:NOK) CEO Rajeev Suri said Ericsson (NASDAQ: ERIC) and Cisco's partnership to resell each other's products and services and jointly develop new ones means that Nokia was right to purchase rival Alcatel-Lucent (NYSE: ALU) for $16.6 billion (€15.6 billion). Nokia also commenced its formal share offer to buy Alcatel-Lucent's outstanding shares and drive the merger toward completion early next year.
"That announcement is a validation of our strategy," he told the Wall Street Journal. Nokia, strong in wireless networking, is going to take on Alcatel-Lucent's strengths in routing, switching and IP networks. Ericsson and Cisco executives have said that their deal offers them many of the benefits of Nokia and Alcatel-Lucent's marriage without having to go through a potentially lengthy and messy merger.
Suri told the WSJ that Nokia's "wireless only" strategy was a temporary plan aimed at getting the company back to financial health and escaping several unprofitable business lines. Nokia has sold its HERE location and mapping division for around $3 billion to a consortium of leading automotive companies, Audi, BMW and Daimler. "We had a lot of businesses which were massively subscale," he said.
Nokia's deal for Alcatel-Lucent has now received all of the necessary antitrust and government approvals and the close of the deal depends on enough Alcatel-Lucent investors tendering their shares and Nokia shareholders approving the transaction. The deal is expected to formally close in the first quarter of 2016.
Both the Nokia-Alcatel-Lucent deal and the Ericsson-Cisco agreement reflect a desire on the part of vendors to stay ahead of the curve in a world of converging network technologies. "This market is converging rapidly, much faster than you think, and in order to serve operators that are becoming more and more converged, you need to have a portfolio that is end-to-end," Suri said.
John Chambers, Cisco's executive chairman and former CEO, indicated that he thinks Nokia's deal to acquire Alcatel-Lucent is likely to fail, citing the mergers that created Alcatel-Lucent in 2006 and Nokia and Siemens' deal to create the Nokia Siemens Networks joint venture in 2007. However, Suri said the analogy is flawed.
"When those deals came, the road maps [for LTE] were already on the way -- they were too late," he said. Now, the new round of deals is coming ahead of the definition of 5G networks, which will require more converged network solutions, lower latencies and a focus on the Internet of Things. Widespread commercial deployments of 5G are not expected until around 2020 or 2021.
"We will be able to have one converged 5G offering rather than each of us building our own 5G network and then having to align them if we consolidated in two years," Suri told the Wall Street Journal of Nokia and Alcatel-Lucent. "We are just ahead of the curve."
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- see this Barron's article
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