Nokia is rumored to be considering a bid for Lucent Technologies.
Lucent Technologies’ shares yesterday rose 12% following rumors that Finnish mobile giant Nokia would bid for the company. This is one of the first pieces of good news Lucent’s shareholders have heard for a long time, after a year where the share price has fallen by 80%.
Nokia is in a strong position to make acquisitions – unlike most technology stocks, its shares have managed to hold their valuee this year. Lucent is certainly an attractive takeover target. It did badly this year because it was slow to market compared with Nortel in fast-growing optical technologies and has not made the impression in the 3G infrastructure market that it would have hoped for. The core business, however, is sound.
Nokia is undeniably king of mobile handsets, with 32% market share, but handset margins are gradually being squeezed as competition intensifies. To make up for this, Nokia has recently been building its higher-margin wireless infrastructure operations. It has had some success in winning contracts to build 3G networks, but is lagging behind others. Meanwhile, Lucent is spinning off its high-growth components business to concentrate on telecoms infrastructure and optical equipment; the core operation would complement Nokia’s infrastructure operations particularly well.
Even better, Lucent is one of the biggest telecoms equipment manufacturers in the US market. This has historically been Nokia’s major weakness in terms both of handset sales and network equipment; purchasing Lucent would boost its US operations substantially. It would also acquire one of the world’s best R&D facilities in the form of Lucent’s Bell Labs – this would improve its R&D capacity in general and help it tailor products to the US market.
The businesses should fit together well. One problem could be a potential clash between Nordic and Anglophone corporate culture – but the effects of this are hard to predict; certainly some such mergers (such as AstraZeneca) have been successful. The potential synergies are great enough that a bid should still be a good move.
