Nokia Corporation (NOK Quick QuoteNOK - Free Report) recently announced a definitive deal to acquire Infinera Corporation for an enterprise value of $2.3 billion. Infinera is well known for its innovative open optical networking solutions and advanced optical semiconductors that enable carriers, cloud operators and governments to scale network bandwidth, accelerate service innovation and automate network operations. With the buyout, Nokia aims to expand its optical network business, especially in the North American market.

Based in Espoo, Finland, Nokia has transformed significantly since its inception, emerging as a prominent force in network infrastructure, telecommunications, and consumer electronics worldwide.

This agreement signals a pivotal moment to enhance Nokia’s Optical Networks business, boosting its scale by about 75%. It will likely expedite its product development and broaden its offerings, creating a sustainable and competitive business. The deal is expected to help Nokia meet diverse customer needs, especially of the webscale customers, the fastest growing segment of the market.

Further, due to the minimal customer overlap of the two companies, the acquisition will likely help Nokia to strengthen its optical position in regions such as APAC, EMEA and Latin America, where Infinera has a strong market presence. The acquisition is also expected to accelerate Nokia’s strategic goal of diversifying its customer base and expedite by leveraging Infinera’s recent advancements in high-speed optical components suited for artificial intelligence workloads.

Additionally, the combined entity will benefit from significant in-house capabilities, including an expanded digital signal processor development team, expertise across silicon photonics and indium phosphide-based semiconductor material sciences, and deeper competency in photonic integrated circuit technology.

 Nokia will acquire Infinera for $6.65 per share. The transaction is expected to help Nokia achieve a double-digit operating margin in its Optical Networks business. The combined entity will likely deliver more than 10% earnings per share accretion by 2027 with a return on invested capital comfortably above its weighted average cost of capital. Nokia also targets to achieve EUR 200 million of net comparable operating profit synergies by 2027.

This transaction, along with the recently announced sale of Submarine Networks, will likely help Nokia to create a reshaped Network Infrastructure business based on three strong pillars: Fixed Networks, IP Networks and Optical Networks.

Shares of Nokia have lost 9.9% over the past year against the  industry’s growth of 42.1%.

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Zacks Rank and Key Picks

Nokia currently carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the broader industry have been discussed below.

Arista Networks, Inc. (ANET Quick QuoteANET - Free Report) , sporting a Zacks Rank of 1 (Strong Buy) at present, supplies products to a prestigious set of customers, including Fortune 500 global companies in markets such as cloud titans, enterprises, financials and specialty cloud service providers. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista delivered a trailing four-quarter average earnings surprise of 15.39%. It has a long-term growth expectation of 16.07%.

Motorola Solutions, Inc. (MSI Quick QuoteMSI - Free Report) provides services and solutions to government segments and public safety programs, along with large enterprises and wireless infrastructure services. Currently, Motorola holds a Zacks Rank #2 (Buy).

It delivered a trailing four-quarter average earnings surprise of 7.54% and has a long-term growth expectation of 9.47%. In the last reported quarter, Motorola delivered an earnings surprise of 11.51%.