Nokia is understandably bullish on its recently closed $2.3 billion Infinera acquisition, which comes as the once staid optical networking space is set to surge.

The deal officially closed earlier this year, bringing together two of the optical networking market’s five largest vendors into a stronger single entity. Dell’Oro Group in a recent report noted that Nokia ended last year as the market’s No. 3 vendor, with Infinera at No. 5. Their combined market share puts them on equal footing with the market’s No. 2 player Ciena, and closer to market heavyweight Huawei.

Nokia’s enhanced position is most prominent in North America, where Infinera garnered around 60% of its sales. That includes a strong presence with webscale providers, which Nokia noted is “the fastest growing segment of the market.”

“The Infinera acquisition will accelerate our growth strategy in data centers and strengthen our presence both in North America and with webscale customers,” Nokia CEO Pekka Lundmark noted at the time the deal closed.

Manish Gulyani, head of marketing for network infrastructure at Nokia, explained to SDxCentral in an interview that the deal will allow the combined entity to focus on the rapidly evolving optical networking space, which like everything else is being impacted by advances in artificial intelligence (AI).

“I’ve been in IP and optical for a long time,” Gulyani said. “IP used to be the sexy thing and optical was, that's fine. I think it's kind of reversed. IP is like it's all nothing new happening in IP and optical every day there's some new, cool innovation, because I think with AI optical is on fire.”

That fire is also fueling data center and networking spend. Dell’Oro Group is forecasting that data center capex will surge more than 30% this year, driven by a “sustained demand on AI infrastructure and a broader recovery in general-purpose infrastructure for servers and networking.”

More specifically, the optical networking space is showing increased demand. Dell’Oro Group noted that the optical transport market ended last year “on a strong note, growing approximately 45% quarter-over-quarter” during the final three months of the year.

“There is light at the end of this tunnel,” Dell’Oro Group VP Jimmy Yu wrote. “The optical transport equipment market entered a period of revenue contraction in late 2023 and looks to be exiting it in early 2025. The strong fourth quarter growth rate in 2024 is a great indication that supply and demand for optical transport equipment is near equilibrium, meaning the equipment glut is over.”

Nokia confident on optical opportunities Rob Shore, who came over from Infinera and is now part of portfolio marketing for optical networks at Nokia, added that the deal will provide Nokia with a more focused approach toward tapping that financial pipeline.

“It doubles our scale,” Shore said. “It makes it so that not only we have more capacity, but we don't need to both develop the same engine independently. We don't need to do two 1.2-terabit engines. … As we look forward, instead of developing two of the same engines, we can now develop multiple engines to address more applications. It's going to enable us not only to accelerate the rate of our innovation and accelerate the ability to get new technologies out, but also simultaneously address more applications and pretty dramatically increase our addressable market to be able to capitalize on all these new opportunities.”

Those new opportunities are expected to increasingly come from outside of Nokia’s traditional telecom focus.

“Interestingly, Nokia's decision to acquire companies while simultaneously selling certain assets seems like a strategic maneuver aimed at optimizing its business portfolio and enhancing its market position,” Aurojyoti Bose, lead analyst at GlobalData, noted in a report. “This dual approach is primarily focused on strengthening its core business segments, particularly in Network Infrastructure and Optical Networks. … The stratagem seems to be revolving around divesting less strategic businesses and investing in core areas where Nokia sees high growth potential.”

Lundmark acknowledged this legacy struggle during the vendor’s third-quarter earnings call last year but also pointed to Nokia’s opportunities outside of that space, especially in the data center market.

“Even though the telco TAM [total addressable market] is expected to recover somewhat next year, we have to be realistic,” Lundmark said during the Q3 call. “Telco TAM will never be a significant growth market so the only way to grow there will be through taking market share, which we have cost targeting, but it’s not the growth market. … Data centers will be our No. 1 growth target for the coming years. There will be others as well, but that will be the No. 1.”

Shore said some of that focus will be on new challenges facing data center operators. This includes delivering high-speed connectivity within data centers while managing power challenges.

“I think there's a whole new breed of optics that are going to be needed,” Shore said. “In addition to having trouble with the power grids, data center operators are having trouble fitting everything into a single building, so what they're having to do is break up a single data center into a bunch of smaller data centers that they want to act like a single data center, but those could be as far as 20 kilometers apart. So how do I interconnect those with low-cost optics, low latency optics?” Gulyani did note that the Infinera deal does better position Nokia’s optical business within the larger organization, and “has full support from the board to the CEO.” This includes newly appointed CEO Justin Hotard who took over from Lundmark on April 1. Hotard previously served as head of Intel’s data center and AI group.

“Within the larger Nokia … we feel pretty well set up and situated,” Gulyani said. “The company is clearly positioning it as an area of growth and been telling our investor community and others, we've been talking quite clearly about the ambitions for growth, which is driven by diversification. We have a large footprint with service providers, but we've been steadily growing in what we call mission-critical enterprise. We have a fair amount of business in verticals like energy, like transportation, like public safety, research and education. But then we also had ambition to grow quite a bit on the cloud side, big web cloud companies, and this is where both IP and optical are very heavily focused in driving growth there, so that's where we are focusing in. I think we are pretty well situated.”