How a potential Nokia takeover would impact the network equipment market

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Telecom equipment supplier Nokia is reportedly believed to have hired investment bank Citi to fend off a hostile takeover bid worth as much as $17.4 billion, according to Reuters. Nokia declined to comment on the story, originally reported by TMT Finance, which a company spokesperson characterized as “market rumors.”

global telecommunications equipment market share

A hostile takeover would exploit Nokia’s turbulent market position: The company fired an estimated 5,000 employees since 2019, named a new CEO earlier this year in hopes of catching up in the 5G race, and was subsequently excluded from the $5.2 billion in contracts awarded for China Mobile’s second phase of 5G rollouts. In February, Bloomberg reported that the company was exploring a possible sale or merger, though Nokia denied these claims.

An attempt to take over Nokia would be met with intense regulatory scrutiny, as it would weaken US-aligned alternatives to Huawei and ZTE. The US government — which has asserted that Chinese suppliers Huawei and ZTE pose threats to national security — has attempted to steer allied nations toward telecom equipment providers Ericsson, Samsung, and Nokia.

In February, US Attorney General William Barr even floated the idea of the US government purchasing a controlling stake in Nokia or Ericsson to make one of them “a far more formidable competitor and eliminate concerns over its staying power or their staying power.”

A takeover of Nokia by a private equity company — which tends to involve asset sell-offs and multiyear restructuring initiatives — would run counter to US interests in this regard. US authorities could exert pressure to block such a takeover, but that in itself wouldn’t  solve Nokia’s underlying problems, as the company would still be forced to undergo a prolonged adjudication period, further hampering business operations.

If, however, a takeover bid goes through, Huawei stands to grab considerable market share. In a world where Ericsson and, to a lesser extent, Samsung stand as the primary US-sanctioned telecom equipment providers, other nations may find it increasingly difficult to abide by recommendations to not even consider Huawei and ZTE.

With financial backing from the Chinese government, Huawei will likely emerge from the pandemic with an even more favorable market position: The company announced it would increase its R&D budget by $5.8 billion in 2020, bringing the total to over $20 billion. Only two other companies, Amazon and Alphabet, spent more on R&D in 2019. The prospect of this competitive landscape might force the US’ hand in terms of bolstering an alternative player, an endeavor which could be accelerated by the strategic purchase of Nokia assets.

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