Nokia Bets on AI Data Center Boom in $2.3B Infinera Deal

(Bloomberg) -- Nokia has agreed to buy Infinera Corporation in a $2.3 billion deal that will expand the company’s networking products for data centers and increase its presence in the US, a potentially key source of growth as the boom in artificial intelligence drives demand for server capacity. 

“AI is driving significant investments in data centers at the moment, and one of the key attractions of this acquisition is that it significantly increases our exposure to data centers,” Nokia Chief Executive Officer Pekka Lundmark said in a call with reporters on Friday. 

Infinera’s exposure to “server-to-server communications” inside data centers is particularly attractive because that “will be one of the fastest growing segments in the overall communications technology market.”

The takeover will value the optical telecommunications maker’s equity at $6.65 per share, the companies said in a statement late on Thursday. At least 70% of the deal will be paid in cash, with the rest consisting of Nokia’s American depositary shares, according to the statement, which confirmed an earlier report by Bloomberg News. 

Sales at Nokia and its rival Ericsson have been hit by a dramatic pullback in mobile network spending as the industry struggles to recoup investments. Nokia also suffered a major blow when Ericsson secured a $14 billion contract with AT&T. in December to build an OpenRAN network, a technology that’s more cloud friendly and opens networks up more than previous, heavily integrated solutions.

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This deal, Nokia’s biggest since the €10.6 billion ($11.4 billion) takeover of Alcatel-Lucent in 2016, will help build up the fixed network business that the company expects will drive a pickup in the second half of the year as customers increase orders for technology used in cloud infrastructure.

Infinera and its competitors have also been suffering from weaker spending. The company reported that revenue fell by about a third between the fourth quarter and first quarter this year and it swung to a net loss, missing analysts’ estimates in its May financial results. Larger rivals Cisco Systems Inc. and Ciena Corp. also reported contracting revenue in the most recent quarter. 

Still, Infinera said it won a significant new customer and CEO David Heard said the business is positioned to take advantage of key shifts in the industry, including the proliferation of data centers and AI workloads. 

“This is optimal timing, buying something just before the market starts to recover,” Lundmark said in an interview on Friday. “The optical market has been weak,” for the past two years though Nokia and analysts are predicting the market will recover in 2025, he said.

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