Major Restructuring for NSN - Analyst Blog
November 25 2011 - 7:30AM
Zacks
Nokia Siemens Networks (NSN), a
50-50 joint venture between Nokia Corp. (NOK) and
Siemens AG (SI) to provide telecom network
infrastructure solutions, has recently declared its major
restructuring initiatives. As a part of the restructuring process,
the venture company will reduce its headcount by 17,000 throughout
the world, which will be approximately 23% of its global work
force. From now, NSN will concentrate primarily on wireless
broadband networks, customer experience management, and
professional services and will disinvest its non-core
businesses.
The complete exercise is designed
to reconstruct the business structure of the joint venture so that
it can opt for an IPO. Both Nokia and Siemens are now eager to come
out of this venture and concentrate more on their core businesses.
However, several industry researchers believe an NSN IPO can take
place only after properly revamping the struggling telecom
infrastructure solutions provider, which will take quite some
time.
Despite being the second largest
company in this field after LM Ericsson AB (ERIC),
NSN always remain in sticky wicket once it was formed in 2007. The
company is still not able to reach profitability. Management
expects its proposed restructuring to result in an annual cost
reduction of approximately $1.35 billion by 2013. Importantly, the
joint venture between Nokia and Siemens will come to an end in
2013.
In July 2011, NSN abandoned its
equity disinvestment plan. Two major U.S. private equity groups,
Kohlberg Kravis Roberts and TPG, have backed out from their bidding
for a significant stake in NSN. The departure of these two private
equity groups primarily resulted from the disagreement between the
firms and NSN over price and controlling stake in the venture.
Meanwhile, both Nokia and Siemens have agreed to inject
approximately $675 million each to complete the venture’s
restructuring.
In April 2011, NSN completed the
long-waited acquisition of network gear businesses of
Motorola Solutions Inc. (MSI) for $975 million.
This acquisition was aimed to solidify the company’s fragile
foothold in the lucrative CDMA markets of North America, which
remains the major drawback of the venture. However, NSN is yet to
win any significant contract in this region.
Recently, massive competitive
threats from low-cost Chinese network infrastructure vendors have
become a matter of concern for NSN. Huawei and ZTE are fighting
neck and neck with NSN to capture the global market share. As a
result, the company became marginalized in the battle field due to
the introduction of more efficient and price effective equipments
from Ericsson, Huawei, and ZTE.
ERICSSON LM ADR (ERIC): Free Stock Analysis Report
MOTOROLA SOLUTN (MSI): Free Stock Analysis Report
NOKIA CP-ADR A (NOK): Free Stock Analysis Report
SIEMENS AG-ADR (SI): Free Stock Analysis Report
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