Nokia, Alcatel-Lucent to Create Networking Giant

Nokia will buy Alcatel-Lucent for $16.6 billion in a move that will result in a vendor that will challenge Ericsson, Huawei and Cisco.

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Nokia will buy Alcatel-Lucent in a $16.6 billion deal that has been years in the making and promises to create a significant player in a rapidly evolving networking market dealing with such fast-moving trends as mobile computing, the cloud, the Internet of things and software-defined networking.

Talk about Nokia possibly acquiring Alcatel-Lucent began at least two years ago, after Nokia bought out Siemens' half of the companies' joint venture and had agreed to sell its struggling handset business to Microsoft. The announcement of the deal comes less than 24 hours after officials with both vendors said they were in advanced negotiations, though they had cautioned that an agreement wasn't certain.

The melding of the two vendors will create a company that in 2014 had a combined $27.5 billion in sales and $2.45 billion in profit, more than $5 billion in R&D (including funding for Bell Labs and Nokia's FutureWorks program) and net cash of almost $7.9 billion. Nokia will see its addressable market increase by 50 percent, to more than $138 billion, officials said.

The boards of directors of both firms have approved the deal, and it now needs Nokia shareholder approval as well as the go-ahead from government regulators. The deal is expected to close in the first half of 2016.

Executives with both Nokia and Alcatel-Lucent said the new company—which will be named Nokia Corp. and will be headquartered in Finland—will be strong and broad enough to address customer demands for seamless connectivity (both wired and wireless) and to challenge such competitors as Chinese vendors Huawei Technologies and ZTE in Europe and Asia and Cisco Systems in the United States.

"We have hugely complementary technologies and the comprehensive portfolio necessary to enable the Internet of things and transition to the cloud," Nokia President and CEO Rajeev Suri—who will take over the CEO post in the new company—said in a statement. "We will have a strong presence in every part of the world, including leading positions in the United States and China. Together, we expect to have the scale to lead in every area in which we choose to compete, drive profitable growth, meet the needs of global customers, develop new technologies, build on our successful intellectual property licensing and create value for our shareholders."

The deal could create a realignment of the competitive playing field in networking, according to Zeus Kerravala, principal analyst at ZK Research.

"It's a big move for the industry," Kerravala told eWEEK. "Both ALU and Nokia [combined] create a conceptual end-to-end network provider. … The only place customers could go to get [a complete network environment] is either Huawei or ZTE. There's really not a credible alternative from a European or U.S. company, and this really creates one."

The problem has been that for many of these vendors—including Ericsson, Nokia and Alcatel-Lucent—they have been trying to adapt to the new communications demands being put on networks while also trying to protect their legacy PBX businesses, he said. Meanwhile, Chinese vendors like Huawei and ZTE had no legacy business to worry about, enabling them to concentrate on creating new IP portfolios.

Alcatel-Lucent CEO Michel Combes, who has overseen an extensive restructuring of the company under his Shift Plan, said that will change with the new Nokia Corp.

"A combination of Nokia and Alcatel-Lucent will offer a unique opportunity to create a European champion and global leader in ultra-broadband, IP networking and cloud applications," Combes said in a statement. "This transaction comes at the right time to strengthen the European technology industry. We believe our customers will benefit from our improved innovation capability and incomparable R&D engine under the Bell Labs brand. The global scale and footprint of the new company will reinforce its presence in the United States and China."