Nine months almost to day after it was announced to the world, Risto Siilasmaa and Rajeev Suri’s baby has officially taken its first tentative steps.
The combined Nokia and Alcatel-Lucent business, trumpeted by the former’s Chairman and CEO last April in a €15.6 billion deal, opened for business today but will have to grow up fast if it wants to deliver on its promise to be a global leader in technology and services.
Although Suri claimed in a “celebratory” press release that the combination has come “at just the right time” it is precisely that commodity which is so key to its future.
With A-L’s portfolio, Nokia will compete on a more even footing with Ericsson and Huawei but the two European companies could be handing a serious short-term advantage to their Chinese rival.
For while Nokia will be focused on integrating A-L, notably trying to untangle overlaps in wireless, Ericsson will be working on a business and technology partnership with Cisco that it announced in November.
Naturally, the two deals will require a period of internal focus as they work on personnel, product and sales and marketing processes.
You can be sure that the naturally aggressive Huawei will go on the offensive and attempt to woo those customers that might be wavering about staying with two companies in the midst of a tie-up.
Gartner analyst Sylvain Fabre says Nokia looks in better shape than Ericsson-Cisco, given it has the advantage of being one company now.
He gives it 12-18 months to sort everything out internally and says it is unavoidable that management time will be focused on this.
“Consequently, it is Huawei that benefits,” says Fabre.
The analyst urges Nokia to provide visibility about what’s happening on a regular basis to ensure the industry, and particularly customers, has clarity.
Ronald Gruia, Director for Emerging Telecoms at Frost and Sullivan, says one of Nokia’s biggest challenges will be figuring out how to appease those customers who have bought A-L tech that its new owner will want to phase out.
“[Those customers] bought into a vision,” he says. “Nokia has to think about what is the most prudent way forward. To keep hold of them you cannot keep charging them to upgrade. It has to be carefully managed.”
Gartner’s Fabre says it is likely that Nokia will lose some existing customers.
As such, he thinks maintaining market share over the next two years should be regarded as something of a success.
“They’re not going to be firing on all cylinders [in that time] so it would be a good achievement,” Fabre says.
For Frost and Sullivan’s Gruia, success will be judged on their ability to monetise the expanded IP/tech portfolio and cost savings.
While we will hear more about the former over the weeks and months ahead, Gruia says Nokia’s estimates on the latter are too conservative.
The Finland-based company originally targeted €900 million of operating cost synergies by 2019.
Last October, however, it revealed it would achieve that figure 12 months ahead of schedule.
Gruia thinks Nokia could double savings to €1.8 billion.
“Of course, it’s easier if you set a lower goal for yourself,” he says.
Both analysts believe Nokia has a management team that can deliver on its goals but warn that most big mergers tend to lose some value.
Whatever shape Nokia finds itself in in 2018 Fabre thinks that, from a technology point of view, it will not be at a disadvantage.
He explains: “Virtualisation and 5G are the next procurement fronts and by the time they really take off [Nokia] should be a [fully] integrated company.”
Nokia declined to comment for this story.