InShortViral: Nokia 2015 announced that it would acquire rival Alcatel-Lucent, and the combined company will occupy a more favorable position in the telecom equipment market. More than analysts expected, Nokia shares will rise 30 percent this year.
[dropcap]N[/dropcap]okia will not re-introduce traditional phone. Before 2007, Nokia has been a leader in the mobile phone market, but Apple in 2007 launched iPhone which has changed the overall market choice. The following year, Nokia’s profit declined significantly. By 2012, Nokia had operating losses appear. Subsequently, with $ 2.2 billion acquisition of Nokia Siemens joint venture held a stake in NSN, decided to shift the focus of the network equipment business. By the end of 2013, Nokia’s mobile phone business will be sold to Microsoft. Over the past 10 years, Nokia’s American depositary shares fell by more than half.
April 2015, Nokia announced the acquisition of Alcatel-Lucent. The deal is expected to be completed in early 2016, and after the completion of the acquisition of Nokia’s share of the global network equipment market is expected to reach 35%, higher than 20% of Huawei, but still less than 40% of Ericsson. After the deal, Nokia’s mobile service will integrate Alcatel-Lucent’s fixed-line business, to gain certain advantages in competition with Ericsson.
It should be noted, for investors, Alcatel-Lucent is not in itself a successful French company. After nine years ago, Alcatel and Lucent merger, the company’s American depositary shares had fallen by two-thirds.
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So, Nokia and Alcatel-Lucent merger will get what kind of results? First, the current share price of both companies has rebounded from the lowest point. 2015, Nokia’s profit expected to be 1.19 billion US dollars, an increase of 1% on revenue of 14 billion US dollars, an increase of 1% year on year. Although revenue is far lower than in 2007 at € 51 billion, profits of 7.2 billion euros, but it also shows that Nokia’s performance is stabilizing. Over the past 6 months, due to cost control measures are effective, Nokia’s earnings per share should be better than expected. Since the spring of 2013, Nokia’s American depositary shares have doubled.
Alcatel-Lucent is also committed to improving the operational efficiency. Currently, the company’s operating margin has been negative to positive in 2015 is expected to reach 6.7%, and further growth. Alcatel-Lucent’s American depositary shares rose in the three-year period has doubled.
Secondly, after the merger, the new company will be able to save costs. Despite being improved, but Alcatel-Lucent’s profit margin is still only half of Nokia. Nokia said that after the merger, 2019 will be able to save 900 million euros in costs. Nokia Cost Control field has a good resume. In 2011, when the joint venture Nokia Siemens Networks has promised cost savings of 1 billion euros in 2 years, and the final cost reduction reached 1.5 billion euros. CEO Rajeev Suri who is currently the CEO at Nokia.
Third, due to the reduction in marketing expenses and new investments, Nokia will be able to get more cash. Margin improvement will bring good, and debt reduction and accumulated tax losses of Alcatel-Lucent also will help. Barclays analyst Andrew Gardiner predicts that by 2019, Nokia’s free cash flow from operating activities will be more than 8% of enterprise value. Gardena will now be classed as preferred shares of Nokia.
Gardena is expected to Nokia ordinary shares in the year to reach 8.75 euros, up 32%. BMO Capital Markets analyst Tim Lang last month it will be Nokia’s American depositary its rating raised to “market fair” on “outperform” and that management is likely surpassed Nokia to cut costs aims. Tim Long expected, Nokia shares will rise to $ 10, up 39%. Currently analysts’ average target price of Nokia’s American depositary receipts for $ 8.63, which is equivalent to 20% of the increase. While taking into account Nokia’s wealth will come from cost-cutting and improving cash flow, rather than re-achieve rapid growth, so the possibility to achieve this great goal.