(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.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
-- 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
(Editing by Robert Cole and David Evans)
Keywords: BREAKINGVIEWS NOKIA/SIEMENS
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