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How Do Nokia & Alcatel-Lucent Stack Up?

Light Reading takes a closer look at the strengths and recent financial performance of the two vendors as they negotiate a possible merger.

Iain Morris

April 14, 2015

7 Min Read
How Do Nokia & Alcatel-Lucent Stack Up?

Nokia has confirmed it is in talks to acquire Alcatel-Lucent, but how do the two companies compare in terms of their assets, organizational structure and key performance indicators? (See Nokia, Alcatel-Lucent in Merger Talks, Nokia/AlcaLu: The Key Friction Points and Finnish Line for AlcaLu?)

In terms of revenues, each generated about €13 billion (US$13.8 billion) in 2014, with the bulk of revenues in both cases coming from the sale of networking products, despite media interest in Nokia Corp. (NYSE: NOK)'s HERE mapping division (which is rumored to be up for sale) as well as Nokia Technologies -- the part of the company responsible for intellectual property rights. (See Eurobites: Ericsson Takes 5G on the Buses.)

Nokia, however, has built its networks business around mobile broadband technologies, and claimed to be the world's third-biggest vendor in this market, behind Huawei Technologies Co. Ltd. and Ericsson AB (Nasdaq: ERIC), last year. It attributed its sales success in the October-to-December quarter mainly to growing adoption of LTE radio products. At the end of the year, Nokia was serving about 162 LTE operators besides an installed base of 200 3G customers and 300 2G customers.

2014

Year-on-Year Change Compared With 2013

Revenues

12,732

0%

- Networks

11,198

-1%

- HERE

969

6%

- Technologies

578

9%

Gross margin

44.3%

+2.1 percentage points

Operating profit

170

-67%

Net profit

1,171

2756%

Employees

61,656

12%

Source: Nokia

Professional services have also become a critical part of Nokia's networks operation. The Global Services division, which manages networks serving around 550 million customers, generated about €5.1 billion ($5.4 billion) of the €11.2 billion ($11.9 billion) that Nokia Networks reported in revenues in 2014.

Even so, as noted by Caroline Chappell, Principal Analyst, Cloud and NFV, at Heavy Reading , Nokia has been trying to ensure that products such as NetAct -- a virtualized solution for network management -- can appeal to fixed network players. A merger with Alcatel-Lucent (NYSE: ALU), which makes 16% of its revenues from the fixed access market, would clearly support that ambition.

For more NFV-related coverage and insights, check out our dedicated NFV content channel here on Light Reading.

The big attraction of Alcatel-Lucent, though, may be its IP core networking and IP software lines of business, which have been responsible for market-leading hardware and software products such as the vendor's router portfolio, the CloudBand NFV management platform and the Motive device management tools: That division accounted for as much as 45% of revenues last year. Alcatel-Lucent is determined to sell these products to both fixed and mobile operators, and a sale of its wireless business to Nokia would have undermined that strategy, notes Chappell. A full-blown merger, on the other hand, would support Alcatel-Lucent's ambitions just as much as Nokia's.

2014

Year-on-Year Change Compared With 2013

Revenues

13,178

-3%

- IP routing

2,368

6%

- IP transport

2,114

0%

- IP platforms

1,484

-16%

- wireless access

4,685

4%

- fixed access

2,048

-1%

- managed services

369

-53%

- licensing

55

-29%

Gross margin

33.4%

+2.1 percentage points

Operating profit

623

124%

Net profit

-86

Vast improvement!

Employees

52,673

-11%

Source: Alcatel-Lucent

Clearly, a takeover of Alcatel-Lucent could see Nokia dump Juniper Networks Inc. (NYSE: JNPR) as its IP partner, giving the Finnish vendor a strong IP presence in several areas. Alcatel-Lucent controlled 26% of the IP edge routing market at the end of September 2014, according to market-research player Dell'Oro. Motive, which is used to support fixed and mobile device management, was managing around 300 million devices at the end of 2014, making it the market-leading product in this area, according to Analysys Mason, another market research company. (See Nokia/AlcaLu: The Key Friction Points.)

Moreover, while Alcatel-Lucent and Nokia generated comparable revenues in Europe and some other parts of the world, Alcatel-Lucent is a much bigger player in North America, while Nokia does more business in the Asia-Pacific. Bulking up in these respective regions would help a combined company stand up to the likes of Ericsson and Huawei.

2014

Year-on-Year Change Compared With 2013

Europe

2,929

-4%

Middle East and Africa

1,053

-5%

Greater China

1,380

16%

Asia Pacific

3,289

-2%

North America

1,538

15%

Latin America

1,009

-20%

Source: Nokia

2014

Year-on-Year Change Compared With 2013

North America

5,793

-6%

Europe

2,982

-10%

Asia Pacific

2,631

15%

Rest of world

1,772

-4%

Source: Alcatel-Lucent

From a purely operational perspective, Nokia looks far more profitable than Alcatel-Lucent at the gross-margin level, although both companies flagged gross-margin improvements last year. Unlike Nokia, Alcatel-Lucent failed to register a net profit in 2014, but its bottom line rebounded after a dismal 2013 -- when net losses ran to €1.25 billion ($1.3 billion) -- and it is clearly moving in the right direction.

What a tie-up would mean for employee numbers remains to be seen, but if the two players were brought together in their current form the resulting entity would have more than 114,000 employees. That would still make it smaller than Ericsson, which had 118,000 staff on its books at the end of 2014, when it made about the same in revenues as Alcatel-Lucent and Nokia combined.

However, while Nokia's employee base grew by 12% in 2014, Alcatel-Lucent's shrank by a similar proportion. Downsizing and efficiency are likely to be the watchwords post-merger, as investors scour financials for evidence of synergies the deal has brought.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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