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Nokia, Alcatel-Lucent merger to surpass Huawei

Posted: 17 Apr 2015 ?? ?Print Version ?Bookmark and Share

Keywords:Nokia? Alcatel-Lucent? merger? Huawei? layoffs?

The proposed $16.6-billion merger between Nokia Corp. and Alcatel-Lucent is set to create the world's second largest provider of telecommunications system. If the deal pushes through, the combined companieswith their estimated $28 billion revenueswould leapfrog China's Huawei, but will still fall behind first placer Ericsson.

The merger anticipates savings of about a billion dollars a year by 2019. In a conference call, executives said the savings would come in part from eliminating overlapping products, sales and administrative staff and wireless R&D as well as lower real estate costs and better purchasing clout.

"There will be a lot of redundancies on the wireless side from an engineering perspective," said Stefan Pongratz, a wireless analyst with Dell'Oro Group.

Part of Nokia's rationale for the merger is to broaden its base beyond the radio access systems where it is strong but the $35 billion annual market is declining about 1 per cent on a compound basis through 2019, according to Dell'Oro. By contrast, the $13 billion router market where Alcatel-Lucent is strong is rising about 3 per cent through 2019, Pongratz said.

"Nokia has done a very good job turning around the company in the past few years...but with its cost cutting efforts coming to an end and radio-access systems in decline, it needed to increase its addressable market," he said.

"It's a smart move," said Alam Tamboli, router and broadband analyst with Dell'Oro.

Nokia lacked Alcatel-Lucent's routing and optical platforms that are doing well in the market. AlcaLu is ranked second to Cisco and ahead of Juniper in overall routers, largely on the strength of its edge routers though its small core router business is growing rapidly, said Tamboli. Indeed, AlcaLu reported record router revenues in its last three quarters, he added.

Nokia AlcaLu merger

Nokia's sales (left) come mainly from the declining radio-access market while AlcaLu (right) is rising in the growing router business.

Thanks to its strong provisions protecting workers, France will apparently be spared the brunt of the merger's layoffs, which were not detailed. Indeed, in France the combined companies plan to preserve wireless R&D and set up centres of excellence in 5G, small cells and security as well as creating am approximately $100 million fund for French start-ups focused on the Internet of Things (IoT).

However, there are reports that the merger could lead to layoffs at the French company's India unit. A source told the Economic Times that major overlaps between AlcaLu and Nokia Networks in India could result in some layoffs, particularly amongst mid- to senior-level employees. At present, Alcatel-Lucent employs about 100 sales people in India and some 2,500 engineers and scientists in the company's R&D labs in Gurgaon, Chennai and Bengaluru.

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