Nokia and Alcatel-Lucent potential merging together will lead to integration challenges although their combined global employee strength is more equal to that of Ericsson and little less than that of Huawei . They need to have a stringent strategic and operational plan laid out for turning into a lean agile company that sets the direction for the future of telecom

1. Nokia and Alcatel-Lucent – an integration challenge
Nokia recently in mid-April announced its intent to buy-out Alcatel-Lucent for Eur 15.6B (then valued
at $16.6B, and recently at $17.3B, thanks to the Euro slide against the US$) to become the second
largest telecom infrastructure company in the world, behind Ericsson from Sweden. The Chinese giant
Huawei is seen as their biggest threat presently ranked third and they are growing rapidly in all
technology fronts. Given that all these giants are seeing their mobile infrastructure business coming
down and there is a huge potential in the IP/cloud /TV & Media area, this consolidation may still be
questionable as originally Nokia had wanted only ALU’s wireless business, if insider reports are to be
believed but they ended up with ‘all-or-nothing’ package.
For some background, Alcatel –Lucent (ALU) has about 52K employees worldwide, of which 6000 are
in France approximately, and was facing weak growth prospects having not turned a profit for a while
now. Nokia has a worldwide strength of about 62000 of which 6900 employees are in Finland. Hence it
is safe to say that the employee strength in their ‘head-quartered’ country is about 11-12%. Nokia (the
former NSN) and ALU have a market cap of about $26.3B and $11B. ALU’s revenue was pegged at
$15.4B and they have about $6.8B in cash. Remember that ALU was still going through their SHIFT Plan
for the past couple of years – this plan made them concentrate on four areas: IP routing and transport,
Wireless, IP platforms and Fixed networks. Looks like executing to these plans had been their challenge
recently. With this acquisition, Nokia gets a significant boost in their North American market, their
research capabilities (thanks to the former Lucent labs) and also gets to add on to their Optical business,
which is a big win for them. As for ALU, not sure what their gain is.
Given that Nokia approached ALU with a buyout target which was a couple of billions lower than the
one announced, and before meeting with the French President , it is safe to say that there has been
some good monetary provisions made for any potential ‘structural repercussions’ if this transaction
goes through. France, a much loved labor oriented socialist country, has announced there would be no
job loss there but it is up to anybody’s guess as to what happens in a ‘protective’ European community
Let me digress a little about Nokia and sync up the readers about they are now – they are not what we
know them to be (a mobile company). This is the Nokia Services Network (name changed after Nokia
bought out the share of Siemens from Nokia Siemens Network) and the original ‘mobile’ Nokia Research
division (Nokia Technologies) and the HERE (aka OVI or Services division of ‘mobile’ Nokia once, largely
still the NavTeq acquisition assets). HERE maps seem to be making a good business in the entire
automotive and embedded navigation segment through the European vehicle manufacturers and since
this does not fit into the scheme of things of the present Nokia, it is being seen as a unit that would be
sold soon, if the price is right. No suitors till date for this unit. But they are making close to 300M
euros. And if the present Nokia does have thoughts of entering the mobile handset market again,
through the Alcatel acquisition (yes, there are Alcatel phones but not sure if they are part of ALU), they
cannot use the Nokia name for a few more months hence, according to the agreement with Microsoft.
It had been an integration challenge both for Nokia and Siemens, and for Alcatel and Lucent when
they decided to merge with each other. When it comes to integration, my guess is Cisco has it to an art

2. form as most of their business is driven through inorganic routes. This Nokia-ALU combine may not put
too much pressure on Ericsson at this point as they are already structured along the future potential
Cloud, IP and TV/media areas along with being the leaders in the BSS/OSS segment and in the Radio
systems area. If there is a hole in Ericsson strategy going forward, it may be on the Optical side where
lots of companies like Ciena, Infinera etc. specialize and in the network energy space that takes care of
Data centers (given the boom of E-commerce, esp. in the Asia region).
Before I look one level down from their individual structure of Nokia and ALU, let me highlight where
Huawei stands. They, like Samsung of the mobile client world, seem to be pitching in all areas to cover
their wide base. They seem to have a solid Wireless (BTS, Small Cell) and Wired (Fixed Access, Datacom,
Transport network) stream, carrier software (aka BSS), Core networking products, Data center and
Network Energy (hot field of interest now), IT which encompasses both cloud and storage, and all
enterprise products (to compete head-on with Cisco) as well as a reasonable consumer division (which
takes care of most of the client like mobile, media and home).
Now when it comes to Nokia and ALU, there are lots of high level domain redundancies in their IP
networking and Access suites like Customer Experience Management (ALU had acquired Motive a few
years ago), Small cells , Subscriber Data management and their IP Multimedia system. Of course, the
usual operation support function like HR, recruitment, IT support, sales and marketing would all have
deep impacts. But a good part of recent investments by ALU in Analytics, Cloud, and content device
management would stay and grow together as Nokia has not yet concentrated in these segments along
with their recent alignment towards anything Internet Protocol. The original Bell Labs of ALU would
have to merge with Nokia Technologies and form a giant of a research division that would be regarded
as the best in the world.
Nokia would like to compete effectively with Ericsson with their Global Services arm, and would make
Core networks, IP (to do a lot of homework here with ALU’s arm to have a cohesive story) and Transport
networks to be their contribution to the merger and have ALU bring in expertise through the future
areas with high potentials highlighted above and their RF, wireless and optical product lines. If these
two European entities combine and integrate well, they can be a formidable company going forward.
Convenience and availability must not be the force to drive any mergers or acquisitions, but must be a
carefully thought-out process, both on the strategic front and also on the execution front on the merged
product lines. If I make a comparison to the world of Tennis, the top two singles players combining to
play doubles will not make them the best doubles pair. The markets they want to operate in, the areas
where there are potentials upticks that they need to invest, the ‘cash cow consolidation’ wherein what
is making money today can be combined to partly pay for the future, and the technologies that can
give them that extra push are the main thrust areas to look into before any mergers happen.
Telecom , per say, is a highly capital intensive segment, and with the huge payments done by the
Operators to acquire spectrums, they would have little in terms of investing for the future by buying
newer technologies offered by these telecom infra company . Adoption of newer 5G or Nanocore
technologies esp., in the emerging markets is going to be slow.