By Supantha Mukherjee

STOCKHOLM, June 28 (Reuters) - Nokia's bid to

buy U.S. optical networking gear maker Infinera ( INFN ) in a

$2.3 billion deal puts the Finnish company on track to gain from

the billions of dollars in investment pouring into data centres

to cater to the rise of artificial intelligence.

The deal would help Nokia to leapfrog Ciena and

become the second largest vendor in the optical networking

market with a 20% share, behind Huawei, which is

benefiting from the minimal presence of Western companies in

China.

Telecom gear makers, struggling with lower sales of 5G

equipment, have been looking for ways to diversify their markets

and get into growing areas such as AI.

Nokia's move will allow the company to sell more equipment

to big tech companies such as Amazon ( AMZN ), Alphabet

and Microsoft ( MSFT ) as they invest billions of

dollars in building new data centres to service the artificial

intelligence boom.

"This is pretty optimal timing for a deal of this nature

when you are timing it just before the market is expected to

start to recover," Nokia CEO Pekka Lundmark said in an interview

with Reuters.

"AI is driving significant investments in data centres ...

one of the key attractions of this acquisition is that it

significantly increases our exposure to data centres," he said.

Data centres use optical transport networks - cables made of

glass that transmit digital signals - to allow electronic

devices to talk to each other.

Infinera ( INFN ) is especially strong in intra data centre

communications, which refers to server-to-server communications

inside data centers. This will be one of the fastest growing

segments in the overall communications technology market,

Lundmark said.

Nokia shares rose 4% in morning trade, signaling that the

shareholders are bullish about the deal. The share price of

buyers would typically ease due to dilution in a cash-and-stock

deal.

Nokia, which will pay 70% of the purchase price in cash and

the rest in stock, expects to save 200 million euros ($213.88

million) in costs following the deal's closure next year.

While the purchase multiple may be somewhat steep as

Infinera ( INFN ) had a lumpy growth trajectory, if Nokia could extract

the 200 million euros in synergies, then the purchase price

would be justified, said Mads Rosendal, analyst at Danske Bank

Credit Research.

Infinera ( INFN ) gets about 60% of its business from the United

States, while Nokia had a bigger share in Europe and Asia,

making it a complementary transaction, said Lundmark.

"The two businesses together have combined cost of sales of

over 2 billion euros and operating expenses of over a billion

euros ... so against that target, 200 million (euros) is not a

particular stretch," Lundmark said, adding that it was too early

to comment on potential layoffs.

($1 = 0.9351 euros)

(Reporting by Supantha Mukherjee in Stockholm;

Editing by Ros Russell)