Breakingviews-Nokia Siemens Networks make up for lost time

Thu Nov 24, 2011 3:21pm IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Quentin Webb

LONDON, Nov 24 (Reuters Breakingviews) - Nokia Siemens Networks is making up for lost time. After failing to find a private equity backer to spur change, the struggling telecoms equipment joint venture is embarking on a home-grown programme of job cuts, cost reductions and divestments. That’s needed just to survive in a brutal industry. But NSN is unlikely to gain independence anytime soon.

The cost cuts centre on 17,000 layoffs: a grim total that’s not quite up there with 2011’s biggest, like HSBC’s 30,000 layoffs, but still represents an extraordinary 23 percent of staff. NSN is seeking 1 billion euros a year of savings, equivalent to about 7.5 percent of annualised sales, based on the quarter to end-September. The company may exit non-core businesses, and will sensibly focus on two promising areas where it’s already big: mobile broadband and service provision.

Things may well have been further advanced had NSN not wasted a year courting private equity. The talks fizzled in July and Nokia (NOK1V.HE) and Siemens (SIEGn.DE) ultimately injected 1 billion euros of fresh capital themselves. And of course Nokia, the dominant owner, has been busy trying to find an answer to Apple’s game-changing iPhones.

The new moves are vital but are also expensive in themselves. Bernstein reckons the restructuring charges will be 1 to 1.5 billion euros. And the telecoms equipment industry’s terrible dynamics will remain. Making and servicing telecoms gear is technical and costly: NSN’s 2010 research outlay was 17 percent of sales. That benefits the biggest operator, Ericsson.

Price pressure is another big headache. Low-cost Chinese rivals Huawei and ZTE are formidable competitors, and customers, chiefly telephone companies, want all the bargains they can find. Ericsson predicts a tenfold explosion in mobile data traffic by 2016, as more video is streamed on phones and tablets. But phone users hate paying more for data, so phone companies squeeze the network firms.

For both NSN and its parents, Nokia and Siemens, the goal is self-reliance, perhaps via a flotation. But NSN is ceding market share to Ericsson, even as European spending on wireless networks picks up, and is only making the narrowest of underlying operating profits. At best, it will be years before this problem child leaves home.

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CONTEXT NEWS

-- Nokia Siemens Networks said it would reduce its workforce by about 17,000 staff by the end of 2013, and aimed to cut annualised operating expenses and production overheads by 1 billion euros a year over the same time period. The Nov. 23 news from NSN came alongside an ambition to sharpen focus on providing infrastructure for mobile networks.

-- NSN, the world’s second-biggest provider of mobile network equipment, is jointly owned by Nokia and Siemens. Nokia consolidates the joint venture into its accounts, names four of its seven directors, and appoints the company’s chief executive.

-- In September Jesper Ovesen, who served as chief financial officer at TDC during a restructuring and subsequent flotation of the Danish telephone company, joined as executive chairman.

-- Mobile Europe story: The businesses that are getting the axe at Nokia Siemens Networks r.reuters.com/cub35s

-- NSN statement: r.reuters.com/xeb35s

-- Reuters: Nokia Siemens Networks to slash staff by quarter [ID:nL5E7MN2DO]

(Editing by Robert Cole and David Evans)

((quentin.webb@thomsonreuters.com)) Keywords: BREAKINGVIEWS NOKIA/SIEMENS

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