Nokia, Alcatel Partnership: China Is the Prize

24/7 Wall St.

Reports from unnamed sources indicate that the Nokia Corp. (NOK) board has discussed a tie-up with Paris-based Alcatel-Lucent (ALU), now that the Finnish company has shed its mobile handset business in a $7.1 billion sale to Microsoft Corp. (MSFT). No formal discussions between Nokia and Alcatel-Lucent have taken place, however.

Nokia recently completed its acquisition of the 50% stake Siemens A.G. (SI) held in a joint venture called Nokia Siemens Networks (NSN), and the sale of its handset business virtually guarantees that Nokia will become a network equipment company that will find itself competing against such giants as Ericsson (ERIC) and China’s fast-growing Huawei Technologies.

At the end of August, NSN and Alcatel-Lucent each won about 10% of $3.2 billion in contracts awarded by China Mobile Ltd. (CHL) for the build-out of the Chinese firm’s 4G network. Ericsson nabbed another 10%. Huawei and another Chinese firm, ZTE Corp., were each awarded about 25% of the contracts.

China Mobile has not indicated how much it will spend on its 4G network, but the company had spent only about a third of its 2013 capital spending budget of $31 billion before these awards were announced. China Mobile’s 4G network would be the country’s first, and its competitors would have to follow, making the 4G build-out in China something very much worth fighting over.

Nokia and Alcatel-Lucent by themselves may have a tough time competing with Ericsson, Huawei and ZTE. Combined, however, the two could be a major player in projects that could last for several years.

Shares of Alcatel-Lucent are up 3% in premarket trading Thursday morning, at $3.69 in a 52-week range of $0.91 to $3.62. Nokia’s shares are down about 0.5% at $6.60 in a 52-week range of $2.52 to $6.78.

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