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Nokia banks on software to save it from historic merger problems

Progress in product design could ease integration with Alcatel-Lucent portfolio

Nokia banks on software to save it from historic merger problems
Nokia has pledged to cut costs by $960m by 2019.

Finland's Nokia believes the shift in its industry from hardware- to software-centric product development will help it avoid the failures of previous telecoms vendor tie-ups, as the company prepares to acquire France's Alcatel-Lucent.

Mergers such as Nokia's own with Siemens and the creation of Alcatel-Lucent itself, have met with difficulties, as constituent companies operate in a market where hardware products need to be installed and maintained over extended periods of time. Meeting the long-term needs of telecoms operators has historically blocked swift progress towards a consolidated product portfolio, as companies fulfil pre-merger support commitments.

But combining products is now easier because of progress in product development, according to analysts and telecoms executives, who believe modular designs and open interfaces will help ease the transition and allow Nokia to live up to its pledge to cut costs by $960m by 2019.

"While some of our past integration experiences have been painful at times, you should not be thinking about swap-out costs in the same way as in the past," Nokia Chief Executive Rajeev Suri told investors. Open interfaces, 4G technology and cloud computing "allow more rapid and efficient integration", he added.

"What took Alcatel-Lucent and Nokia Siemens four or five years to do on the product roadmaps last time around will only take two or three years this time," said Bernstein Research analyst Pierre Ferragu.

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