This acquisition could put Nokia on top as a leader in the next generation of IoT connectivity. Meanwhile, it will create job losses
As 2015 winds to a close, anticipation is growing around Nokia’s acquisition of Alcatel-Lucent that is set to come into effect in Q1 of 2016. The deal that was announced in April wherein Nokia will take over the entirety of the French company raises questions about the future of the Finnish telecommunications company and the country’s rising IoT startup sector.
In accordance with the EUR 15.6 billion deal, Nokia will take full control of Alcatel-Lucent, hopefully leaving little room for discord at the top following the completion of the acquisition.
The timing of the acquisition comes at a speculative time for the telecom industry. Both of these companies have faced difficulties and cut wide swaths of their workforce to remain in business.
Nokia’s decision to take over the struggling French company implies that they believe that a consolidation presents their best way forward in an increasingly competitive atmosphere.
Riitta Mård of Nokia’s Media Relations told Geektime that, “The rationale for the deal is that both are both major telecom companies and combining them will give them a leading position in the world with a wider portfolio of technologies.”
Job losses expected
“Each have their own specialities of sectors,” she says, adding that, “The deal will make them stronger together.”
This deal could be a mixed bag for Finland as the once dominant Nokia continues to evolve. The country faced significant layoffs after the company declined from their leadership position in the handset market when they failed to compete in the smartphone era. In combining with Alcatel-Lucent, Nokia’s CEO Rajeev Suri hopes to garner significant cost savings that will likely lead to even more job losses.
Responding to how the takeover will affect Finnish workers at Nokia, Mård tells Geektime that, “It’s too early to speculate how this will affect job growth. There will be savings, so some job losses will be expected.”
“There are areas where synergy can be found here, not only in jobs,” explains Mård referencing the projected EUR 200 million annual savings that the company expects to achieve with the deal through cuts to overhead and infrastructure costs.
Long term silver linings
While the immediate impact of the acquisition will likely be painful for French and Finnish employees at these companies, there is reason to believe that this bet could pay off over the long run.
For Nokia, acquiring Alcatel-Lucent and their strong hardware capacity points directly at doubling down on their long term vision. As a leader in communications infrastructure, Nokia is already well positioned to move into the 5G networks that will be essential for the smooth functionality of the rapidly expanding IoT market, of which Alcatel-Lucent’s expertise will give them a leg up in offering solid network capacity solutions.
Founder and CMO of the IoT testing platform Thingsee Ville Yllasjarvi tells Geektime that he believes the deal is part of a plan of “betting for the future and the introduction of 5G.”
“I expect a stronger future portfolio and also a broader customer base will be the key ingredients in the battle for next gen network technologies,” he says, explaining that, “Following the merger, Nokia will become a leading player in this new market which will be driven by IoT and expanding need for mobile connectivity.”
Finland is fast becoming a leader in the IoT sphere, due in large part to the engineering and mobile talent that entered the startup scene after Nokia’s downturn a few years ago. This was glaringly apparent at Helsinki’s recent SLUSH 2015 conference in November with the plethora of IoT companies like Thingsee who emerged from Nokia to stake out their own ventures.
Many of these ex-Nokia employees have already set up budding companies and are starting to mature, which could help to soften the blow for the next wave of Finns that will need employment after the job cuts begin. The influx of new talent may serve to strengthen this sector and Finland’s position as a leader in IoT. As Nokia and others grow the IoT ecosystem, they will look to smaller outside providers for solutions.
Nokia has already announced that they will establish a EUR 100 million fund to help French startups in the IoT and Industrial Internet sector, reflecting the desire to replicate the Finnish model and might lead to the growth of France’s startup scene.
Nokia’s acquisition follows a clear line of actions for the company as it navigates its restructuring. From regaining its shares from Siemens in 2013, pivoting away from the crowded handset market, thinning out its workforce, and doubling down on the future of IoT, Nokia appears to be laying down bets that could pay off for them many times over in the long run.
This will be an exceptionally bumpy road and is likely to face serious opposition from those that it will harm in the short term as Nokia gets back in the business of connecting people.
The good news is that after the dust settles, Nokia will emerge stronger and more sustainable, keeping many jobs in Finland that might otherwise disappear. Their charge into IoT can only serve to grow the sector and create more opportunities for the country’s talented startup community.