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Business Transformation

Nokia + AlcaLu: What the Analysts Say

The potential combination of Nokia and Alcatel-Lucent is a fascinating one for many reasons: It's a risky game-changer that could either extend the shelf life of both vendors or put a stake through their collective heart. (See Nokia, Alcatel-Lucent in Merger Talks, Nokia/AlcaLu: The Key Friction Points, How Do Nokia & Alcatel-Lucent Stack Up? and Finnish Line for AlcaLu?)

It may also give us the next in a long line of terrible post-merger multi-vendor name combinations. (Anyone for NokAlu? Will a totally new name be needed? Might they combine under the Nuage name even?)

So what do industry analysts think of the news, which followed shortly after a story from Bloomberg late on Monday that suggested Nokia Corp. (NYSE: NOK) was only interested in Alcatel-Lucent (NYSE: ALU)'s wireless infrastructure business? Here are some early thoughts from our learned friends.

Gabriel Brown, Senior Analyst, Heavy Reading
"The rumor on Monday was for a carve out of Alcatel-Lucent's wireless business. As I argued at that time (on Twitter), that would be difficult from a practical perspective because wireless is deeply embedded in the company. I also don't think that scenario would be particularly useful for either company.

"A full merger is a different proposition -- but wow. There are lots of angles. Over time, it should help drive some margin growth and stave off Huawei a while longer. In theory, greater scale, and taking out a competitor, should help margins, but both companies know that generating benefits from these big mergers is a long-term play. In the meantime, there would be a lot of disruption, should the deal go ahead.

"It'll be interesting to see customer reaction. They need financially successful suppliers that can afford the vast R&D budgets you need to be effective in networking. And from a wireless perspective, if you had to merge two of the four major vendors, this would be the combination with least customer overlap. On the other hand, this will reduce competition for their business and create uncertainty about product roadmaps."

Caroline Chappell, Principal Analyst, Cloud and NFV, Heavy Reading
"I agree that carving out Alcatel-Lucent's wireless business doesn't make a lot of sense. Alcatel-Lucent has been making strenuous efforts in its IP Platforms business, where its newly strategic Motive portfolio and CloudBand sit, to make its software products relevant to both mobile and fixed operators, a position that would be undermined if it lost its wireless business. At the same time, Nokia is trying to make its competitive products, such as CEM On Demand and NetAct, relevant to the fixed network. A merger could help both strategies. (See NSN Unveils CEM Service Suite and NSN Enhances Its Virtualized OSS.)

"However, I see considerable product overlap in IP Platforms, which could contribute to product roadmap uncertainty and which competitors could capitalize on. On the other hand, both companies have market-leading software products with which Ericsson and Huawei are struggling to catch up -- CloudBand and Motive Device Management from Alcatel-Lucent and CEM On Demand from Nokia -- so customers are likely to stick with them. And there would be an advantage in boosting the scale of IP Platforms to approach that of their larger rivals.

"Industry consolidation is inevitable as virtualization enables a new cohort of software-based competitors to flourish and I agree that this merger makes most sense out of the combination of the four main players."

Bengt Nordstrom, founder and CEO, Northstream
"Nokia's potential acquisition of Alcatel-Lucent would change the dynamics of the infrastructure space. Simply buying a part of AlcaLu wouldn't impact the market nearly as dramatically as acquiring the whole company.

"At a stroke, the infrastructure market would expand from two big players -- Ericsson and Huawei -- to three. A potential acquisition would give Nokia a company whose products very much complement its own current portfolio. Ericsson in particular would face a strong competitor, both geographically and on the product side.

"The big challenge that will define whether the expanded Nokia could seriously challenge Ericsson is how well it could integrate Alcatel-Lucent into its operations. Historically, integrating companies of relatively equal size and revenue has been very challenging. The various different cultures at each company -- Finnish, German, American, French, Indian -- is also an unknown factor that might complicate the process.

"What might make this potential acquisition successful is Nokia CEO Rajeev Suri's strong track record for downsizing and streamlining."

Steve Bell, Senior Analyst, Heavy Reading
"Although the initial Nokia/Siemens merger was shaky, Rajeev Suri has acted with strategic decisiveness since he became CEO. His consolidation of the company and the subsequent acquisition of Motorola's networks business have been done with both vision and a keen eye on rationalization.

"Insider comments from people who were part of the Motorola acquisition said he ensured the integration was swift and he acted with surgical precision on cost. If anyone can bind these two companies together, it is probably Suri. However, the political aspects of acquiring what is still a French company and the likely human impact in terms of restructuring will be a greater challenge than any portfolio rationalization and customer retention issues."

Jim Hodges, Senior Analyst, Heavy Reading
"I agree with my colleagues there is considerable overlap and it could be a difficult integration.

"Given both have had success on the turnaround front I can only assume this is purely business and scale driven. If you look at the NSN and Alcatel-Lucent mergers they certainly didn't meet original expectations, but they did survive, while others like Nortel, which was rumored to be in the merger mix with Alcatel, didn't make it, so perhaps that's the final metric to assess overall merger success.

"I wonder if both companies have run detailed long-term market share forecasts by region and both concluded, that despite short-term success, they simply can't grow share or expand business in the next decade without a major change."

We will add more analyst commentary as it comes in.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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MikeP688 5/9/2015 | 12:48:21 AM
Re: Off the shelf @Susan:  It worked like a charm--very seamless with no issues at all.    The possiblities can be indeed limitless.    
Susan Fourtané 5/8/2015 | 2:27:51 AM
Re: Off the shelf Indeed, Mike, thanks. Resurrecting and recycling old laptops sounds like a good idea if they are part of a program to send laptops, say, to some schools where they don't have the technology they need to be tuned in teaching in the current century. In that case, having working laptops can be of great help even if they are not packed with the latest technology and some teachers can do wonders with then providing students with some first steps in using computers as a learning tool. How about broadband connectivity in the Netbook that you resurrected? -Susan
MikeP688 5/6/2015 | 10:03:42 PM
Re: Off the shelf @Susan:  Thanks for the question.   I'll answer your question with a question:  Why not?   why not have the ability to squeeze out additional life out of older laptops?   Although we may well frown upon such in the West, the opportunity to expand access around the World is even more possible with a company like Keepod.   I will also note that I was able to literally resurrect an old Netbook by integrating a Keepod Computer and be able to extend the life ever more.   Not everyone is as blessed to have the most up to date technology.

I trust this provides some insights...

 
Susan Fourtané 5/6/2015 | 2:17:36 AM
Re: Off the shelf Mike, is there a point in tranforming older laptops into Android tablets? -Susan
MikeP688 5/5/2015 | 11:44:36 PM
Re: Off the shelf There is a "convergence" on the capabilities of the tablets--and the rise of the Phablets, the traditional tablets will have a challenge--which is at the heart of the iPAD challenge we've deliberated here.    I am with you ,@Susan, in that Nokia will leverage the existing technologies it does control to move on to other areas-the question is success though especially as we see the majors making the moves--and some enterprising companies like keepod coming up with technologies to transform older laptops into working Android tablets.
Susan Fourtané 5/5/2015 | 4:57:21 AM
Re: Off the shelf Gee, Mike, you really do have a tablet collection! :) I only have an iPad Air 2, which I love, and combined with a Logitech bluetooth keyboard serves me well to do my work when I'm on the road like now. So, I wouldn't think of getting any other tablet. Yet, when Nokia launched the N1 last year I found it interesting. More interesting that the tablet per se what I found interesting was the fact that Nokia Technologies was steping into the mobile devices business. I am also sure there is some more Nokia branded products to come. Some toy with the idea of Nokia and Jolla joining forces in the creation of a Nokia device ruuning Jolla's Sailfish OS. -Susan
MikeP688 5/3/2015 | 11:14:23 PM
Re: Off the shelf As someone who has a Android Tablet, A Kindle Tablet, a ipad and has tested numerous others, I am "tablet out"--but what I will say is that the N1 is interesting--but not interesting enough.    When Apple figures out how to "jump start' its' sales of ipad, then others who are trying to follow can have a story to tell to be "different".    
Susan Fourtané 4/29/2015 | 1:22:38 PM
Re: Off the shelf Mike, how funny that you mention the phone business. Because, sooner or later, they might you give you a surprise. :) Have you seen the N1 tablet? -Susan
MikeP688 4/27/2015 | 6:46:43 AM
Re: Off the shelf Some seem to claim so, @Susan.   The fact that they are doing it underscores the need to have options--and I for one welcome it because both companies have been through some rough patches.    Hopefully they wont get back in the phone business :-) 
Susan Fourtané 4/27/2015 | 1:27:17 AM
Re: Off the shelf Thanks, Mike. :) Not for having had a rough ride over the past years a company has to give up. Having the strength and will to get on their good feet again is a sign of good enterprise character. The same applies to people. Combining energies might result in something great, or not. The fact, Mike, is that if they don't try they will never know what could have happened, right? To my knowledge, no one has a crystal ball yet. -Susan
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