Nokia, once the world's dominant handset
maker, failed to close a yawning lead opened up
by Apple Inc and Samsung Electroniocs.
Nokia is discussing internally whether to
approach French rival Alcatel-Lucent
about a tie-up, part of the Finnish
company's review of how it can grow
after the planned sale of its handset
business to Microsoft Corp, several
people close to the matter said.
No formal talks are underway with
Alcatel-Lucent, the sources said. One of
the people close to the matter said Nokia
held "on again, off again" discussions
about buying Alcatel's wireless business
as recently as late 2012 and that the two
companies could still come back to the
table.
Related: Microsoft swallows Nokia's mobile
phone business for $7.2 billion
Speculation over a combination
between Nokia and Alcatel-Lucent goes
back several years, as both have
struggled to compete with market leader
Ericsson and low-cost Asian network
equipment rivals Huawei and ZTE.
Microsoft announced on September 3
that it will buy Nokia's phone business
and license its patents for 5.44 billion
euros. Nokia has said it will evaluate
strategy for its remaining operations
before the deal closes. Those businesses
include a mapping software unit called
HERE and a portfolio of patents.
The Finnish phone maker once
dominated the global market but has
had its mobile business ravaged by
nimbler rivals Apple Inc and Samsung
Electronics.
Related: Nokia to use $2 bn from Microsoft
to pay off NSN financing over Siemens
stake
Nokia, under the leadership of interim
CEO Risto Siilasmaa, has already begun
internal discussions on future strategy,
the sources said, adding that a decision
could be months away.
All the sources asked not to be
identified because they were not
authorized to speak with the media.
Representatives for Nokia, its network
equipment unit, Nokia Solutions and
Networks, and Alcatel-Lucent declined
to comment.
Nokia is in a "period of reflection trying
to figure out what they want to do," one
of the sources said. They said there
were possibilities for Nokia such as
having "the option to buy the entire
Alcatel-Lucent, or just the wireless
business ... Nothing is imminent."
PROCEEDS FROM MICROSOFT DEAL
Any formal dialogue around a
combination would likely be held after
Nokia receives proceeds from the
Microsoft deal, which is expected to
strengthen its financial position and
boost its credit rating to investment
grade from junk status, the people close
to the matter said.
The Microsoft deal would leave Nokia
with its Nokia Solutions and Networks
(NSN) unit as the main business
generating around 90 percent of the
company's sales.
The most likely deal may be for Nokia to
buy Alcatel's wireless division, which
includes a big presence in the lucrative
U.S. market where NSN has traditionally
been weak, one of the sources said. That
would leave Alcatel-Lucent to focus its
fast-growing IP routing and optical
business, the person said.
Analysts put the value of Alcatel's
wireless business at between 1.1 billion
euros to 1.5 billion euros.
A combination with Alcatel-Lucent
would increase NSN's market share in
the global wireless infrastructure
market from 18 percent to more than 30
percent, leapfrogging Huawei and
closing in on Ericsson, according to
analyst data.
While telecommunications operators
around the world have been upgrading
their infrastructure in response to
consumer demand for faster mobile
Internet connections, equipment makers
have been under pressure to sell more
for less.
The pressure led to a round of mergers
in 2006 and 2007, out of which were
born Alcatel-Lucent and Nokia Siemens
Networks.
NSN, which was a joint venture between
Nokia and Siemens from 2007 until
Nokia bought out the German company's
stake in early July, announced in 2011
that it would focus on wireless network
infrastructure to help turn the company
around.
It has since shed more than a quarter of
its workforce, and by the end of 2012 it
was contributing to Nokia's cash flow
instead of draining it.
Alcatel-Lucent, which has been unable
to post regular profits and generate cash
since 2006, also announced a new
restructuring plan in June, under its
new chief executive Michel Combes.
Nokia is likely to be highly cautious
when considering any kind of offer for
Alcatel-Lucent.
With shares of the French company up
about 130 percent this year, the Alcatel
chief executive is currently not in any
rush to strike a deal, the sources said.
There were other issues that could stand
in the way of a deal, such as the risk of
intervention by the French government
to protect Alcatel or limit job cuts, one
of the sources familiar with Nokia's
thinking said. The French state owns
3.6 percent of Alcatel-Lucent.
Nokia also may not be the only company
interested in buying some of Alcatel's
assets. Other network equipment
makers such as Juniper Networks and
Ericsson have also recently eyed Alcatel-
Lucent or some of its assets, one of the
sources said.
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