Nokia has announced plans to acquire optical networking vendor Infinera for $2.3 billion.

According to the company, at least 70 percent of the payment will be made in cash, with the overall deal also including the repurchase of the $760 million in convertible notes owned by Infinera.

The deal is expected to close in 2025, subject to customary regulatory and shareholder approval.

Founded in 2000 and headquartered in San Jose, California, Infinera makes optical semiconductors and networking equipment for carriers, cloud operators, governments, and enterprises.

In a joint statement, the companies listed a number of “compelling strategic benefits” that would result from the acquisition. These include an improved product roadmap, scaling up the North American optical market, accelerating Nokia’s enterprise expansion, and improving Nokia’s in-house capabilities in silicon photonics and photonic integrated circuit technology.

“In 2021 we increased our organic investment in Optical Networks with a view to improving our competitiveness,” said Pekka Lundmark, president and CEO of Nokia. “That decision has paid off and has delivered improved customer recognition, strong sales growth, and increased profitability. We believe now is the right time to take a compelling inorganic step to further expand Nokia’s scale in optical networks.”

David Heard, CEO of Infinera added: “We believe Nokia is an excellent partner and together we will have greater scale and deeper resources to set the pace of innovation and address rapidly changing customer needs at a time when optics are more important than ever – across telecom networks, inter-data center applications, and now inside the data center. This combination will further leverage our vertically integrated optical semiconductor technologies.”

The news comes in the wake of Nokia’s decision to sell its submarine cable unit, Alcatel Submarine Networks (ASN), to the French State.

Once the sale has been completed, Nokia’s Network Infrastructure Business Group will comprise three units: Fixed Networks, IP Networks, and Optical Networks. The deal is expected to reduce the group's net sales by approximately €1 billion ($1bn) but will increase its operating profit margin by 100 to 150 basis points.