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Nokia Oyj, the Finnish telecommunications giant, has agreed to an all-share takeover of Alcatel-Lucent (ALU), with the deal being valued at a whopping US$ 16.6 Bn. The combined company will become the world’s second-largest telecom equipment manufacturer after Ericsson of Sweden.

Why the Takeover of Alcatel-Lucent Makes Sense for Nokia

Nokia is betting big on the technologies of tomorrow, such as Internet of Things (IoT) and cloud computing. It hopes to provide the infrastructure that will be required to connect the devices of the future. The stiff competition from low-cost manufacturers, such as China’s Huawei Technologies Co. is believed to have been instrumental in the takeover of Alcatel-Lucent.

The IoT is being touted as the next big revolution, with some experts comparing it to the invention of the internet and smartphone. According to Future Market Insights’ market research report, the Internet of Everything Market is anticipated to witness a whopping CAGR of around 16% to reach a valuation of nearly US$ 7 trillion. Nokia is aware of the immense opportunities that a transformation of this magnitude will offer, and the decision to buy Alcatel-Lucent seems to have been heavily influenced by this.

The deal will help Nokia get a better shot at the lucrative North American market, where ALU has a strong presence, especially in the wireless business. Nokia will also gain access to the impressive portfolio of ALU in the IP routing solutions.

Nokia currently holds 17% market share in the wireless network equipment sales, and combined with ALU’s 10% share, the combined company will leapfrog Huawei Technologies - an arch-rival of both these companies.

The Challenges Ahead for Nokia

Although both Nokia and Alcatel-Lucent have been on a cost-cutting spree in the recent years, any decision to lay off employees in France might not go down well with the French government. Although Rajeev Suri hinted that some jobs would go, he didn’t divulge any lucid details, saying “there will be some impact on headcount but we don’t know the number yet.”

According to Sudip Saha, Managing Consultant at Future Market Insights, the combined company will be a force to reckon with, especially in North America and China. “Nokia’s decision to buy Alcatel-Lucent will help it consolidate its position in North America and China, two of the most lucrative regions in the network-equipment market.”

Although the sentiment among analysts and industry watchers about the deal has been positive, both Nokia and Alcatel-Lucent have a history of taking a long time to settle down after a merger or acquisition, and this is an aspect that everyone will be watching keenly. The culture clash after the merger of Alcatel and Lucent has become a part of corporate folklore, whereas Nokia had to fish in troubled waters when its merger with Siemens failed to take off. So, how these companies start off next year will be a key factor that can define the success of this acquisition.