Nokia picks up Infinera, drops ASN in portfolio rejig

Created July 2, 2024
News and Business

In the space of 24 hours, Nokia has announced two major deals: it plans to buy Infinera for US$2.3 billion and sell its Alcatel Submarine Networks (ASN) arm to the French government for around €350 million. Nokia says the deals demonstrate its commitment to active portfolio management and focus on key strategic assets and improving the profitability of its Network Infrastructure business group.

Nokia and Infinera see a significant opportunity in merging to improve scale and profitability, enabling the combined business to accelerate the development of new products and solutions to benefit customers. The transaction aligns strongly with Nokia’s strategy, as it is expected to strengthen the company’s technology leadership in optical and increase exposure to webscale customers, the fastest growing segment of the market.

The transaction represents a premium of 28% to Infinera’s share price at the close of 26 June 2024 and a 37% premium to the trailing 180-day volume weighted average price (VWAP). At least 70% of the consideration will be paid in cash and Infinera’s shareholders can elect to receive up to 30% of the aggregate consideration in the form of Nokia ADSs. Nokia’s Board of Directors has committed to increase and accelerate Nokia’s share buyback program to offset the dilution from the deal.

Federico Guillén, president of Network Infrastructure at Nokia, said, “Today, Network Infrastructure offers a unique portfolio across the fixed access, optical and IP networks domains built on leading technology innovation and a strong customer focus. This acquisition will further strengthen the optical pillar of our business, expand our growth opportunities across all our target customer segments and improve our operating margin. I am extremely pleased that we are bringing together these two talented and dedicated teams. Separately, we have long respected each other as competitors. Together, we find the logic of combination irresistible.”

Nokia believes the transaction has compelling financial and strategic merit. The combination with Infinera is projected to accelerate Nokia’s journey to a double-digit operating margin in its Optical Networks business. Nokia targets to achieve EUR 200 million of net comparable operating profit synergies by 2027*. This transaction along with the recently announced sale of Submarine Networks will create a reshaped Network Infrastructure built on three strong pillars of Fixed Networks, IP Networks and Optical Networks. Nokia targets mid-single digit organic growth for the overall Network Infrastructure business and to improve its operating margin to mid-to-high teens level.

The put option to sell Nokia’s submarine networks business ASN, to the French State, represented by the French shareholding agency Agence des participations de l’Etat (APE), is subject to informing and consulting with the relevant employee representatives at ASN and Nokia. Nokia will retain a 20% shareholding with board representation to ensure a smooth transition until targeted exit, at which point the French State will acquire Nokia’s remaining interest.

By divesting ASN, a non-core standalone business for Nokia, the company says it can focus its Network Infrastructure portfolio on growth opportunities in its core markets and further improve profitability of the Network Infrastructure business group. The transaction demonstrates Nokia’s active management of its business portfolio, one of the company’s six strategic pillars.

Beginning with the second quarter, Nokia expects to account for ASN as a discontinued operation. Going forward, Nokia’s Network Infrastructure Business Group will comprise three units: Fixed Networks, IP Networks and Optical Networks. This is expected to reduce the net sales of Network Infrastructure by approximately €1 billion but will increase its operating profit margin by 100 –150 basis points. This won’t impact Nokia’s previously stated financial outlook disclosed in its Q1 2024 financial report on 18 April 2024.

The sale is expected to close at the end of 2024 or beginning of 2025, subject to formal consultation of ASN’s French Works Council and other customary closing conditions and regulatory approvals.

Pekka Lundmark, president and CEO of Nokia, said: “This is a good step forward in our strategy of actively managing our portfolio. ASN has been a standalone part of our Network Infrastructure business and through the divestment, Network Infrastructure will benefit from a streamlined portfolio with a focus on growth and strengthening its technology leadership. ASN has gone through a significant transformation in recent years and has a strong market position. I am pleased we have found a natural owner for the business. The French State will ensure continued investment in ASN and protection of critical industry know-how.”

Alain Biston, president and CEO of ASN, said “This is an incredibly exciting moment for ASN as we undertake the next phase of our development. The French State’s ownership gives us a stable platform to further develop our vertically integrated technology offering. This, combined with Nokia’s retained stake, underscores all parties’ aligned interests in delivering a smooth transition for the benefit of our customers, suppliers and other stakeholders.”

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This article was written
by Peter Dykes

Peter Dykes is a independent telecoms and technology journalist who has over that last 30 years written for a wide range of B2B publications and companies. A former BT engineer, he specialises in networks and associated support systems. He is currently Editor of Optical Connections.