Blink and you’ll miss it

At the beginning of July it was officially confirmed that Siemens had sold its 50 per cent stake in Nokia Siemens Networks (NSN) for €1.7 billion (US$2.2 billion) to its joint venture partner, Nokia. Siemens had long since been looking to exit the telecom technology provider, and under the sole ownership of Nokia the questions that are now likely to be raised first relate to whether NSN will be able to successfully continue along its strategic path to becoming the world’s leading mobile broadband technology specialist

Nokia interim CEO, Risto Siilasmaa is believed to have already begun internal discussions on future strategy and the implications for NSN

Upon gaining full control of NSN, Nokia said it planned to retain the existing management and governance structure at the company, which is consistent with Nokia having already had management control of NSN for some time prior to the acquisition of Siemens’ stake.

The purchase price of €1.7 billion (US$2.26 billion) for the 50 per cent stake, includes € 1.2 billion to be paid in cash and the balance of €500 million to be paid in the form of a secured loan from Siemens due one year from closing.

Stephen Elop, former president and CEO of Nokia, commented at the time: "With its clear strategic focus and strong leadership team NSN has structurally improved its operational and financial performance. Furthermore, NSN has established a clear leadership position in LTE, which provides an attractive growth opportunity."

Nokia and Siemens established the joint-venture in 2007, but the hyper-competitive environment that has existed in the telecom technology and infrastructure space for some years now meant NSN found the going challenging, culminating in its November 2011 strategy announcement that it would look to focus on mobile broadband and services, and the launch of an extensive global restructuring programme.

At the time, NSN announced that it planned to reduce its global workforce, which stood at 74,000 on November 1, 2011 by approximately 17,000 or 23 per cent by the end of 2013.

These reductions were expected to be driven by aligning the company’s workforce with its new strategy as well as through a range of productivity and efficiency measures. While painful, the strategy has turned the company around and it is expected to turn a profit within the year.

For the second quarter of 2013, NSN reported a near 15 per cent fall in sales year-on-year, to €2.76 billion, although that was a slight improvement on the previous three months.

The decline in revenues was put down to divestments of businesses, as well as the exiting of certain customer contracts and countries. Excluding these two factors, sales declined by approximately 11 per cent due to reduced wireless infrastructure deployment activity, which affected both Mobile Broadband and Global Services.

Gross margin before specific items was 38.4 per cent in Q213, an improvement of 12.2 percentage points from Q212. The year-on-year improvement was primarily due to higher gross margin in both Mobile Broadband and Global Services.

NSN recorded a net profit of €15 million for the period, as compared to a loss of €260 million a year ago, and at the end of the second quarter, the company counted approximately 50,500 employees, a reduction of approximately 12,900 over the past year.

Going forward, Nokia said would continue to consolidate NSN for financial reporting purposes as well as working towards pitching the company as an independent entity.

NSN’s operational headquarters will remain in Espoo, Finland, and the company will continue to have a strong regional presence in Germany, including its major hub in Munich.

The company’s restructuring plan remains unchanged as a result of the change in ownership, though at the beginning of August it ushered in a new name – Nokia Solutions and Networks.

Unveiling the new name, NSN renewed its commitment to driving leadership in the mobile broadband sector and to operating as a more independent entity.

Rapid changes at parent company Nokia in recent weeks may have a direct impact on NSN’s on-going plans, and much sooner than expected. Early speculation has begun that Nokia is looking at a possible tie-up with Alcatel-Lucent once it has completed the disposal of its handset business to Microsoft.

Citing several people familiar with the issue, Reuters said that no formal talks between the two companies have started yet, although the two sides have spoken in the past.

Nokia, which at the beginning of September announced that it is selling the majority of its handset business to Microsoft in a €5.44 billion all-cash deal, has already begun internal discussions on future strategy, the sources said, under the leadership of interim CEO Risto Siilasmaa. It is speculated that a decision could be months away.

Nokia is in a "period of reflection trying to figure out what they want to do," one of the sources said.

They said there were possibilities for Nokia such as having "the option to buy the entire Alcatel-Lucent or just the wireless business … Nothing is imminent."

Nokia and Alcatel-Lucent have long been seen as potential merger targets, with Alcatel-Lucent folding into the NSN infrastructure division. The exit of Siemens from NSN also appears to make negotiations between future targets easier as they will be dealing with two boards of directors, rather than three.

As Nokia will shortly dispose of its handsets business, Alcatel-Lucent also no longer manufacturers phones, although it does license its brand name to a Chinese manufacturer.

A NSN-Alcatel-Lucent merger would be likely to command a network infrastructure market share of around 30 per cent, just behind Ericsson, and ahead of Huawei.

For its part, Alcatel-Lucent only recently unveiled a new strategy, dubbed The Shift Plan, which aims to mobilise the full range of Alcatel-Lucent’s assets and resources to achieve a decisive swing in the group’s industrial focus that it says will concentrate the company on the priorities of its telecom customers as they deploy next-generation networks to address the explosive growth in bandwidth-hungry data traffic. This new focus, over a three-year timeframe, will be on the fast-growing business segments of IP networking, cloud technologies and ultra-broadband access.