Nokia's LTE business

Trefis analysis gives a target price of $7.93 to NOK. In its valuation, it is clear that Nokia Wireless Infrastructure and Networks Services and non-core revenue makes up almost 86% of the revenue.

Out of the above Wireless Infrastructure makes up almost 46% of the revenues.

As we know right now, wireless infrastructure is undergoing an upgrade as LTE networks.  As per Gartner, this market is supposed to grow at 18% CAGR from $18B globally to $36B by 2019.

Geographically, the market is split as follows

Among the various vendors the current market share is with Huawei and Ericsson. Nokia plans to correct that with the acquisition of Alcatel's business. The combined business will become the third largest business for a mobile.

However, in terms of capabilities Gartner ranks Huawaei, Ericsson and Nokia in dead heat, with Alcatel behind the pack in vision and execution.

From a books perspective, the acquisition will create an entity with a combined revenue of around $30B, with each entity making 50% of that number. From an EPS perspective though, Nokia made $0.30 where as ALU made $0.05 EPS.

The acquisition would convert each ALU stock to 0.55 shares of NOK, which implies that the combined entity should make $6 revenue per share in the combined entity. Currently revenue per share numbers for Nokia is $4.1. If Nokia can translate its lower cost base and efficiency to the new entity, the company could again become quite profitable. I can easily see the combined entity having a share price between $10 to $12 post-merger.