Report: Nokia Considering Alcatel-Lucent Deal

Following the sale of its handset business to Microsoft, Nokia may enlist the help of Alcatel-Lucent in building out its wireless networking business

Now that Nokia has bought Siemens’ half of the companies’ joint venture and has agreed to sell its handset business to Microsoft, company officials now must figure out how to better compete in the wireless networking market with Ericsson and Huawei Technologies. According to reports, Alcatel-Lucent may be an answer.

Nokia’s board of directors has talked about the idea of linking up in some way with Alcatel-Lucent that has had its own problems since the merger in 2006 of Alcatel of France and US-based Lucent, according to The Wall Street Journal. However, no official talks with Alcatel-Lucent have been broached.

Competitive pressure

Bloomberg and Reuters also reported that Nokia officials are discussing approaching Alcatel-Lucent, though no talks are under way.

However, the reports illustrate the continued remaking of the wireless networking vendor market in Europe, thanks in part to the pressure from Asian competitors like Huawei and ZTE, both of China.

Alcatel-Lucent LogoAccording to the reports, Nokia’s possible interest in Alcatel-Lucent is just one of a number of options being considered once the Finnish vendor sells its handset business to Microsoft, a deal that is expected to close in the first quarter of 2014. In all, Microsoft – which has worked closely with Nokia to get its Windows operating system on Nokia smartphones – will pay about $7.1 billion (£4.5bn) for Nokia’s handset business, whose products over the past several years have fallen behind Apple’s iPhone and handsets from vendors like Samsung, whose devices run Google’s Android operating system.

Alcatel-Lucent over the past seven years has undergone a series of restructuring and cost-cutting steps designed to bring the company to profitability, none of which have been tremendously successful. Alcatel-Lucent in June – under the direction of new chief executive Michael Combes – unveiled its Shift Plan, in which the company will transform from a more general telecommunications equipment vendor to a specialist focusing on IP networking and ultra-broadband access, both areas that show high growth due to the growing demand from cloud and Internet providers for high-speed networks.

Shift Plan

Officials with Alcatel-Lucent, which has lost about $10 billion since the merger, expect the Shift Plan to save the company about $1.3 billion in expenses and generate another $1.3 billion by selling various assets over the next two years. It also will mean more job cuts for the company, which employs about 72,000.

Nokia in July bought Siemens’ 50 percent share of Nokia Siemens Networks for about $2.2 billion. The deal came after months of comments by Siemens officials saying they wanted to get out of the joint venture and were looking at such options as selling its share, finding a buyer for the whole entity or having an initial public offering (IPO) to raise cash quickly. Nokia chief executive Stephen Elop, after announcing the deal to buy Siemens’ share, said that the joint networking venture “has established a clear leadership position in LTE [Long Term Evolution], which provides an attractive growth opportunity”.

According to The Wall Street Journal, Alcatel-Lucent was brought up during a meeting by Nokia’s board of directors, which was discussing Nokia’s future. One source told the news site that a key concern with Alcatel-Lucent is the “large restructuring risks” associated with the company.

What it would bring to any deal with Nokia is contracts with US wireless carriers AT&T and Verizon Wireless, as well as a deal with China Mobile, China’s largest carrier.

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Originally published on eWeek.