Acquiring Alcatel-Lucent Will Help Nokia Go with the SDN Trend



SDN market has huge growth potential

Previously in this series, we discussed Alcatel-Lucent’s (ALU) growth areas that should benefit Nokia (NOK) after the acquisition. Another growth area is the SDN (software-defined networking) trend. The SDN trend focuses on a market transition involving a move towards more programmable, flexible, and virtual networks. This transition focuses on moving from a hardware-centric approach for networking to a virtualized network environment designed to enable application-driven customization of network infrastructures.

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Alcatel-Lucent is a relatively small player in the SDN market. However, it established Nuage Networks—its wholly owned subsidiary for delivering SDN solutions. The SDN market has huge growth potential. According to a report from SDN Central and as the above chart shows, the SDN market could grow from $3.4 billion in 2014 to $35.6 billion in 2018 at a CAGR (compound annual growth rate) of 80%.

Competition in the SDN market heating up

SDN could be a disruptive force that could challenge traditional leading networking players like Cisco (CSCO) and Juniper Networks (JNPR). Cisco is a relatively new player in this market. It built this initiative on technology developed by Insieme Networks, which it acquired in 2013.

Cisco considers VMware (VMW) to be its biggest threat in the SDN space. VMware bought SDN vendor Nicira for a valuation of $1.26 billion in 2012. After completing this acquisition, VMware named its SDN platform “NSX.” Similarly, Juniper bought SDN vendor Contrail and launched an SDN controller named “OpenContrail.”

However, given the SDN market’s growth potential, Nokia could leverage Alcatel-Lucent’s technology to enhance its presence in the SDN market.

To gain diversified exposure to Cisco, you could invest in the PowerShares QQQ Trust, Series 1 (QQQ). QQQ invests about 3% of its holdings in Cisco. To get more updates on Cisco, please read Cisco: A Look at the Company’s Key Strengths and Weaknesses.


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