Total revenues have fallen 30% over the last seven years. Meanwhile, Alcatel-Lucent's arch rivals Juniper Networks and Ciena showed no signs of slow sales at all:
So Nokia is buying a laggard, not a leader, in the telecom networking hardware space. At the same time, the Finns tether themselves to one specific hardware provider, limiting its ability to shop around for the best deals on the best solutions from all players in the market.
And for this, Nokia shareholders will endure massive dilution of their existing positions. I don't think that's a great idea.
If anything, this agreement looks like a positive event for LM Ericsson as well as other network installation and maintenance specialists. A major competitor just hamstrung its choices for hardware installations, and the whole affair smells like desperation and stale Koskenkorva.
Nokia CEO Rajeev Suri says that this is "the right deal, with the right logic, at the right time." In his view, the merger is all about innovation and economies of scale. Alcatel-Lucent CEO Michel Combes can only nod in agreement.
From where I sit, Nokia is risking billions of dollars in shareholder value (but not in cash -- smart choice!) to build a fully integrated network infrastructure provider. With hardware, installation services, and network management operations all under a single roof, Nokia does become a unique player in this market.
But it's a risky bet. If I were a Nokia shareholder, I would much rather have seen the company doubling down on what it does best and continue to shop around for the best deals and solutions in hardware. The one-stop shopping model doesn't automatically make sense in every sector.
Nokia might get lucky and become a top-to-bottom power player just as the Internet of Things starts requiring serious wireless network upgrades. By the same token, Nokia could also completely miss the boat on the IoT revolution and the upcoming 5G network rollouts.
There are no guarantees but tons of risk. Feel free to place your bets. Me, I'll be watching Nokia's big hardware play from the sidelines.
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The article Good Deal But Bad Idea: Nokia Corporation Buys Alcatel-Lucent SA originally appeared on Fool.com.
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