Nokia must act fast to make A-L deal work

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Analysts have said Nokia must move quickly to rationalise A-L's portfolio, make job cuts and learn lessons of the past.

Yesterday's €15.6 billion deal will create an "innovation powerhouse", according to Nokia, so long as the merger passes regulatory approval.

Analysts welcomed the deal as a defensive move that will protect both companies from rivals Ericsson and Huawei. Shanti Ravindran, Senior Analyst at Analysys Mason, said: "The combined company will have a well-rounded portfolio that can cater to the requirements of CSPs engaged in optimising and monetising their networks and in moving towards virtualisation and the digital economy in the long-term."

She added the deal came at a good time for Nokia, after spending several years sifting through its bloated portfolio of businesses.

According to the analyst, it is critical that the Finnish vendor performs a swift rationalisation of A-L's portfolio. She said: "The deal is expected to be finalised in the first half of 2016, but it will take much longer for the portfolio rationalisation to have an effect on the market. In the meantime, this will create a slowdown in infrastructure deals and could result in an advantage for the competitors."

Sheridan Nye, Senior Analyst for Information and Communication Technologies, Europe, at Frost & Sullivan, said the merger creates a company that is stronger than the sum of its two parts.  

She added: "The challenge is to convince employees and shareholders that cultural integration will be more effective than at either Alcatel-Lucent or NSN, both of which suffered from fragmented governance of merged companies with strong cultures and histories.

"Almost exactly 10 years ago, French national champion Alcatel merged with Lucent, AT&T’s former technology arm, but the deal largely failed to realise its potential. Nonetheless the company’s customer base in North America now represents its most valuable asset."

In a blog, the CCS Insight analyst team said: "The intricacies of mixing international corporations have led to a mixed track record of success, and bringing politics into the arrangement makes matters more uncertain. 

"The new company would have about 100,000 employees, and this could cause months of discussions — and distractions — about personnel roles. The firms will have to complete the dirty work as quickly as possible."

Nevertheless, it said as all the top infrastructure players look to fill portfolio gaps as they begin work toward 5G, Nokia Corp's wider portfolio should help to make deals as many markets continue to establish or build out 4G networks.

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