Nokia buys Infinera for $2.3 billion to boost US optical division

It has agreed to buy optical networking specialist Infinera in a deal worth $2.3 billion. 70% of the sum will be paid in cash, the remaining 30% in Nokia shares. The kit maker said it will accelerate its share buyback programme to offset the dilution.

Nokia said the acquisition will grow the size of its Optical Networks division by 75 percent, enabling it to accelerate its product roadmap and increase its exposure to webscale customers, which account for around 30% of Infinera's revenue.

"In 2021 we increased our organic investment in Optical Networks with a view to improving our competitiveness. That decision has paid off and has delivered improved customer recognition, strong sales growth and increased profitability," said Nokia CEO Pekka Lundmark. "We believe now is the right time to take a compelling inorganic step to further expand Nokia's scale in optical networks."

Nokia's optical unit has had its ups and downs in recent years.

It enjoyed a strong performance in 2022, as supply chain constraints eased, enabling it to meet pent-up demand. That tailed off in 2023 though, and as such, full-year revenue growth at Optical Networks slowed to 3% last year compared to 11% in 2022. The slowdown is ongoing, and in the first quarter of 2024, revenue had slumped 35% year-on-year.

Nokia is betting on Infinera to provide some much-needed momentum, particularly in the US.

It is by some margin the largest market for Infinera, and even more importantly, it's the only one that's growing.

Last year, Infinera's US revenues weighed in at $994.3 million, an impressive 14% increase on 2022. It accounted for nearly 62% of total revenue, more than offsetting declines in every other region, resulting in overall top-line growth of 3%.

Infinera attributed the performance to solid demand from telcos, Internet content providers (ICPs) – the likes of Amazon, Google, Meta and Microsoft – and design wins at its optical semiconductor division.

Infinera is hitting its stride at just the right time.

According to the Fiber Broadband Association (FBA), 2023 was another record year for North American fibre deployment, as the number of homes passed reached 78 million, up 13% on 2022.

In addition, the US data centre market is booming. According to McKinsey, data centre capacity is expected to reach 35 gigawatts (GW) by 2030, up from 17 GW in 2022. Back then, the US already accounted for approximately 40% percent of the global market.

By extension, the data centre networking market is also booming. Market research firm Kings Research in February said its value worldwide reached $21.43 billion in 2022, and is expected to grow to $38.33 billion by the end of the decade.

With AI hype expected to drive another cycle of data centre investment, the outlook for the market looks rosy. By acquiring Infinera, Nokia is well-positioned to capitalise.

"This acquisition will further strengthen the optical pillar of our business, expand our growth opportunities across all our target customer segments and improve our operating margin. I am extremely pleased that we are bringing together these two talented and dedicated teams," said Federico Guillén, president of Network Infrastructure at Nokia.

"We are really excited about the value this combination will bring to our global customers," added Infinera CEO David Heard. "We believe Nokia is an excellent partner and together we will have greater scale and deeper resources to set the pace of innovation and address rapidly changing customer needs at a time when optics are more important than ever – across telecom networks, inter-data centre applications, and now inside the data centre."

Pending regulatory and shareholder approval, the deal is expected to close during the first half of 2025.