Alcatel Lucent SA (ADR) (NYSE:ALU) is soaring up the charts, following the news of acquisition by Nokia. Although Nokia has seen poor growth levels in recent months, the company has been making efforts to maintain consistent profits and shareholder returns. However, since Nokia’s business in China has been on decline, it makes sense that the company wants to pursue other prospects and Alcatel is amongst one of the best opportunities for Nokia. The deal has been valued at $17.6 billion and is expected to result in rising margins for Nokia.
The last separate earnings report from Alcatel had revealed a strong financial position for the company. The FY2015 report had indicated a growth from 33.45% to 36.03% in its gross margins, while operating margins fell by 0.46%. This had also resulted in a growth in EPS, as compared to the preceding year. Additionally, the companies believe that the merger will help them save about 900 million Euros in yearly operating expenses. The two companies expect to achieve this target by 2019.
Apart from becoming more profitable, analysts believe that Nokia’s management team is better equipped to handle the challenges that lie ahead. Currently, Alcatel’s operating margins lie around 7%, but the figure can reach 13%, in the next 2-years, with the help of Nokia’s management.
The important thing to note here is that the acquisition now makes Nokia the second largest player in market for wireless devices. Prior to the acquisition, Nokia had been observed to be lagging behind Huawei and Ericson. China is considered to be one of the world’s largest markets and it is a known fact that Cisco does not have a firm footing in the region. Prior to the acquisition, Alcatel had been able to take advantage of this fact and reached an agreement with some Chinese companies to market its products.
Alcatel Lucent SA (ADR) (NYSE:ALU) closed at a share price of $3.31, after gaining 2.48% and trading 2.8 million shares during the February 17 session.