Why We Expect Stability In Nokia’s Networks Infrastructure Footing

Nokia lost its footing to an extent in the networks infrastructure domain between 2012 and 2015 as the company shed its non-core products division and gave up on some non-profitable contracts. However, following its acquisition with Alcatel-Lucent, the company’s share in the domain is expected to jump to close to 28%, and thereafter, we expect it to remain stable over the next fix-six years. A multitude of reasons can impact the company’s standing both positively and negatively, which is why we’ve forecast its market share to remain roughly stable. However, if Nokia’s share in the networks’ infrastructure domains falls to 24% in the long term from the estimated 28% (2016) pressured by sluggish consumer spending and fierce competition from Ericsson and Huawei, there could be about a 5% downside to our price estimate for Nokia.

Nokia-Alcatel Lucent Merger Creates A Diverse Portfolio

By merging with Alcatel Lucent, Nokia will be able to expand in the domain of optical transmission and IP routers and switches, which are important components for building a network. A comprehensive product line with advanced research capabilities for the development of technologies such as SDN (software defined networking) and cloud computing will give Nokia an edge over Ericsson, which currently only offers wireless networking equipment and services.

Also, the deal offers certain geographical benefits to Nokia, positioning it strongly in the U.S., China and Europe. Alcatel-Lucent has long standing contracts with Verizon and AT&T in the U.S., and it even holds the second largest share in the global service provider router market after Cisco.  Both these factors bode well for Nokia in terms of dealing with its competition.

However, Ericsson-Cisco Alliance Can Neutralize Nokia’s Competitive Advantage

In 2015, Ericsson and Cisco announced a strategic partnership that will reportedly bring in $1 billion in incremental revenues for both companies by 2018. For Ericsson, the deal offers benefits on the competition front, especially in the U.S. The Nokia-Alcatel Lucent merger has created a telecom giant, which will definitely give Ericsson a run for its money. However, by bundling Cisco’s products with its wireless infrastructure equipment, Ericsson would be able to offer end-to-end solutions to its customers, who are expanding their 4G, 5G, and IoT capabilities. Subsequently, Ericsson should be able to fend off competition from Nokia to an extent, and compensate of its lack of an extensive product line. The combined impact of the aforementioned factors should allow Nokia’s share in the market to remain largely stable.

See our complete analysis for Nokia

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap |More Trefis Research