The $17 billion takeover of Alcatel-Lucent by Nokia is set to close tomorrow, and then the integration fun begins. Many megamergers have gone wrong based on cultural issues, egos, and product integration difficulties. We asked some analysts what the process might look like for these particular companies.
Ever since the deal was announced in April, there’s been a lot of bemused conjecture about cultural clashes among groups based in Finland (Nokia), France (Alcatel), and New Jersey (Lucent). But some analysts have warmed up to the idea of these groups working together.
“I initially felt that there would be major clashes, but I think France and Finland have a low number of employees in those countries, so it might not be as bad as I initially thought,” says Ray Mota, CEO of ACG Research.
“Alcatel’s and Lucent’s corporate cultures never really jelled, and neither did Nokia’s and Siemens’s,” says Dana Cooperson, an analyst with Analysys Mason. (She’s referring to Nokia Siemens Networks, a joint venture, now dissolved, that was Nokia’s entree into wireline infrastructure.) “On the positive side, employees of both these firms are survivors of previous clashes of titans, so they are not naive.”
Then there’s the issue of layoffs — the first thing everyone thinks of when two big companies come together.
“Both of these companies have already been through waves of job losses, so one would hope the layoffs would be limited in terms of percent of the companies’ workforces,” Cooperson says. “U.S. personnel have fewer employment safeguards, [so] they are the most expediently laid off immediately following a merger of this magnitude.”
“If you compare the two, Alcatel-Lucent is more advanced in the NFV and SDN space,” says Mota. “Alcatel-Lucent has taken more of its service provider products and offers NFV versions, and with the success Nuage Networks [an Alcatel-Lucent subsidiary] is having, it will be a positive impact to Nokia.”
“As we know, the broader ICT [information and communications technology] industry is undergoing a major, once-in-a-generation kind of transformation, at the core of which are SDN and NFV,” says analyst Rohit Mehra of IDC. “Given the rich technology foundation that both Nokia and Alcatel-Lucent bring to the table, and their deep partnerships with major operators, we expect them to move rapidly in building virtualized network infrastructure and services.”
Cooperson is heartened by the decision to have Bhaskar Ghorti of Alctatel-Lucent lead “whatever they will call the software group,” a decision announced in October.
“He has a lot of experience from his Oracle days of putting together organizations from piece-parts,” she says. “Alcatel-Lucent and Nokia both have some very good people and good products in the NFV and SDN space (including existing OSS assets that will come to play) as well as strong professional services businesses and NFV/SDN transformation offerings, so the assets are there.”
On the business side, AT&T announced in October the addition of Nokia to its Domain 2.0 initiative, intended to bring more vendors into its fold as it advances its SDN and NFV goals. That could result in AT&T representing about 10 percent of the combined Nokia/Alcatel-Lucent’s revenues, wrote Raymond James analyst Simon Leopold in a research note at the time.
Separately, as noted in April, $190 million in annual revenue that’s been going to Juniper will probably stay in-house at Nokia, as Nokia will be able to sell Alcatel-Lucent routers and won’t need Juniper as a router partner. “The transition might take some time, but it will happen,” ACG’s Mota says.
A 5G Connection
One of the stated reasons for Nokia’s purchase of Alcatel-Lucent was to pool their 5G investment dollars.
“Given that the acquisition also includes Bell Labs, there is a fair bit of optimism and, to a large extent, strong expectation that the new entity comes out with disruptive technologies to catalyze and enable a 5G-driven, IoT-powered, frictionless ecosystem,” says IDC’s Mehra.
Finally — what about the shareholders? Nokia is now saying the acquisition could result in €900 million (US$979 million) in savings in 2018, earlier than its initial target of 2019.
“Sure, this is encouraging, but 2018 is still a long time away, and €900 million is simply not a lot for synergies on the €28 billion [$30.5 billion] 2017 sales estimate. We suspect Nokia will institute increased product price discipline at Alcatel-Lucent, which likely benefits the entire industry,” Leopold wrote in the above mentioned research note.
He adds, however: “While the combination with Alcatel-Lucent makes strategic sense, we do not see it creating a compelling investment value. We see improved diversity, but growth remains modest at 2 to 4 percent. It will likely take years to derive the modest synergies, and even with acceleration offset by share dilution, the earnings power is not impressive.”