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02 Jul 2024
$2.3BN acquisition will see the Finnish technology giant take control of integrated photonics fab in Silicon Valley.
California-based optical networking equipment maker Infinera is set to become part of Nokia, after the two companies signed a $2.3 billion acquisition agreement.
The deal will see Nokia’s own optical networking division augmented by Infinera’s long-standing expertise in highly integrated photonics, including an indium phosphide (InP) fabrication facility in Sunnyvale where the company manufactures photonic integrated circuits (PICs).
Nokia says that, assuming shareholders and regulators give the acquisition the go-ahead, it will use cash to settle at least 70 per cent of the transaction price, with the remainder in stock.
“Nokia and Infinera see a significant opportunity in merging to improve scale and profitability, enabling the combined business to accelerate the development of new products and solutions to benefit customers,” announced the two firms, who are also expecting to boost Nokia’s profit margins by realizing $200 million in annual cost savings.
“The transaction aligns strongly with Nokia’s strategy, as it is expected to strengthen the company’s technology leadership in optical and increase exposure to webscale customers, the fastest growing segment of the market.”
Faster innovation
Nokia, which has an annual sales turnover typically in excess of €20 million - including €1.9 billion in optical communications equipment - has been reshaping its business operations of late, including the sale of its Alcatel submarine networking unit to the French state for €350 million.
The Infinera business is set to become part of its new optical networking division, which will have combined annual revenues in the region of €3.4 billion initially.
That would equate to around a 20 per cent share of the global optical networking equipment market, roughly level with Ciena and behind only the Chinese technology giant Huawei. Infinera’s sales are skewed heavily towards North America at present, which will complement Nokia’s more European-focused business.
Nokia also says that the combination of its existing research pedigree within Nokia Bell Labs and Infinera’s expertise in PIC production and packaging will deliver faster innovation and a broader product offering.
Infinera CEO David Heard commented: “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 center applications, and now inside the data center.”
That is a reference to the recent boom in demand for optical chips and transceivers driven by the rush to deploy artificial intelligence (AI) computing power across a broad range of applications.
Federico Guillén, who heads up Nokia’s current network infrastructure division, added: “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.”
2007 IPO
Co-founded by former JDS Uniphase executive David Welch, initial CEO Jagdeep Singh, and serial entrepreneur Drew Perkins back in 2000, Infinera went on to raise more than $300 million from venture capitalists. Welch remains on board, and is currently listed as the firm’s “chief innovation officer”.
In 2007, the company raised a further $180 million via an initial public offering (IPO) of stock, and has been listed on the Nasdaq ever since.
Infinera was initially focused on applications of its PIC-based solutions in long-haul optical networking, before adding products for metropolitan links through its acquisition of Sweden’s Transmode in 2015.
In recent years its sales have ticked up at an average annual growth rate of 6 per cent, reaching $1.6 billion in 2023 as the company grew to employ more than 3000 people.
And although Infinera still posted a net loss of $25 million for 2023, its margins have improved considerably in recent years since it racked up a net loss of nearly $400 million in 2019.
Its PIC technology is now in demand to provide high-speed links between servers inside data centers, in order to support the high computational workloads demanded by AI applications.
The Nokia acquisition already has approval from key investor Oaktree Optical Holdings, which owns 11 per cent of Infinera’s stock, and is expected to close in early 2025.
“This combination will further leverage our vertically integrated optical semiconductor technologies,” said Heard. “Furthermore, our stakeholders will have the opportunity to participate in the upside of a global leader in optical networking solutions.”
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