Nokia has announced its intention to buy optical networking specialist Infinera for $2.3 billion.
The motivation for the Infinera acquisition is scale, said Nokia CEO Pekka Lundmark, during an analyst call detailing the announcement.
Jimmy Yu, Dell'Oro Group
Optical networking is how communications service providers and hyperscalers cope with the exponential traffic growth.
Continual innovation is required to reduce the cost and power consumed to transport such traffic. For a systems vendor, having scale helps meet these aims.
Optical networking wasn't always central to Nokia's strategy. In 2013, Nokia sold its optical networking arm to Marlin Equity Partners, which became Coriant.
Now, Nokia wants to be a leading optical networking vendor by acquiring Infinera, a company that bought Coriant in 2018.
Nokia's announcement regarding Infinera comes days after it sold its submarine optical networking business. "It's part of a larger refocusing on core strengths and higher-growth areas," says John Lively, principal analyst at market research company LightCounting.
Market share and geographical balance
"We estimate that the combined entity will have a 20 per cent market share," says Jimmy Yu, vice president at market research firm Dell'Oro Group.
Dell'Oro's vendor ranking data for 2023 gave Huawei a 30 per cent market share, Nokia+Infinera would be second (20 per cent), while Ciena had a 19 per cent share.
Nokia would also strengthen its sales and balance its presence in key markets globally. Infinera has gained webscale customers in recent years, a significant and growing market compared to telecoms.
Source: Nokia, Infinera"Nokia has had competitive long-haul coherent optics in terms of performance but has failed to get much traction outside its traditional CSP markets," says Lively. "The Infinera deal gives Nokia access to the faster-growing data centre market and a pluggable coherent product line with a strong order pipeline."
Nokia says the optical networking deal will also strengthen its overall Network Infrastructure business unit that includes IP Networks and Fixed Networks.
Technologies
Nokia and Infinera offer optical networking systems based on high-end embedded coherent modems and coherent pluggable optical modules.
John Lively, LightCounting Market Research
In 2020, Nokia bought Elenion Technologies, giving the company a silicon photonics coherent design team and a way to address the growing pluggable coherent module marketplace.
Early last year, Nokia announced its 1.2-terabit PSE-6s coherent modem for demanding optical transport applications. Two PSE-6s coherent modems can be used to create a 2.4-terabit line card. Nokia started shipping the modem in late 2023 and already has 15 customers.
Infinera is known for its expertise in indium phosphide photonic integrated circuits. The systems vendor's latest embedded coherent modem is the 1.2-terabit ICE-7 and it offers a range of coherent pluggable products.
Infinera has recently announced design wins for 800-gigabit ZR/ ZR+ for the hyperscale market, and bidirectional 400G ICE-X pluggables for the cable segment. It valued both opportunities at several hundred million dollars, says LightCounting
Dell'Oro's Yu says Nokia's acquisition of Infinera would allow it to develop the entire optical front end in-house. He highlights Infinera's development of indium phosphide, its indium phosphide chip fabrication plants, and the additional optical front-end components such as the trans-impedance amplifier (TIA), driver, and laser.
"The only other vendors with this much done in-house are Huawei and Ciena," says Yu. "Cisco has all of this except for indium phosphide development."
Infinera's success with webscale companies includes optical networking gear for data centre interconnect. The company is also eyeing the optical networking opportunity inside the data centre which promises significant unit volumes. To this aim, the company is developing a range of ICE-D optical engines.
The company has not detailed much about ICE-D besides claiming that it offers power savings of up to 75 per cent. The power-saving claim is based on using a direct-drive approach and a highly integrated design - optics and electronics. Infinera will likely detail first ICE-D offerings at the ECOC show in September.
Once the acquisition is approved, Nokia will have its own lasers and complement its silicon photonics technology with indium phosphide design expertise. Nokia expects to speed up its coherent modem and product roadmap by combining the DSP design teams.
Challenges and Opportunities
Nokia and Infinera are already advanced in the design of their next-generation coherent designs—the PSE-7 and ICE-8, respectively. These are the two companies responses to Ciena's 200-gigabaud WaveLogic 6 Extreme, which supports up to a 1.6-terabit optical wavelength.
Developing a coherent DSP in a 3nm or 2nm CMOS process is costly. Both companies will continue to develop their designs for now, given that the deal is expected to close in the first half of 2025. However, they will be keen to agree on what design to choose. This had happened before when Infinera halted what would have been the ICE-5 in favour of Coriant's design and turned its full attention to developing the ICE-6.
The industry is challenged to keep driving down the cost-per-bit and power-per-bit. The preferred approach is to keep increasing the symbol rate even if the spectral efficiency gains are more modest with each generation due to Shannon's limit being approached.
However, increasing the baud rate is increasingly challenging and will lead to new parallel designs. Pooling the two companies' coherent design expertise will help here.
Nokia says another factor for the deal is the expected growth in AI traffic. Such AI traffic is on top of fixed and mobile traffic growth. AI will drive intra-data and inter-data centre networking in the core and edge. Such traffic will be for training and inferencing.
The rest
There will be a notable gap between the top 3 and the remaining optical vendors, who all have a single digital market share. However, the consensus is that the niche players will have a role. Since telecom equipment is a critical infrastructure, operators and governments must promote using local vendors when available. Yu cites the examples of the Padtecs in South America and Tejas in India.