Nokia Siemens Networks (NSN) - a 50-50 joint venture between
) has announced that it will be closing its plant in Bruchsal,
Germany, latest by the end of 2013. Shutting down the plant is a
part of the company's cost cutting initiatives to trim down its
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NSN declared that it will negotiate with the labor council in
Bruchsal to close the plant as early as possible which in turn
will eliminate around 650 jobs in the plant. The company expects
the employees to leave the plant in the next three to six months
depending on how the negotiation proceeds.
Formed in 2007, NSN achieved its first operational profitability
only in the third quarter of 2012. Though the company has a
strong GSM portfolio, it lacked severely on the CDMA front, which
is the most dominant network used in the lucrative North American
market. Moreover, by offering lower bids for network
infrastructure contracts, the Chinese vendors like ZTE and Huawei
Technologies provided stiff competition to the company.
In an attempt to overcome this difficult situation and to
concentrate on its mobile broadband business, the company is
reducing its operating cost by retrenching employees and selling
its non-core business units. NSN plans to lay off 17,000 or 23%
of its work force and expects the restructuring to result in an
annual cost reduction of approximately $1.35 billion by 2013.
In this year itself, the company has trimmed about 13,000 of its
work force and has made five divestments, which include selling
some of its internet protocol television (IPTV) assets to
). NSN is also in the final lap of negotiations to sell its
Business Support System unit to L.M.
) and some private equity firms.
Currently, the telecom carriers are heavily investing in network
upgrade to support massive demand for mobile data and video.
Additionally, the Chinese companies are facing political
hindrances in the US market over security concern. This provides
NSN an opportunity to gain a strong foothold in the US market.
We believe selling these non core business assets will help NSN
to concentrate more on building LTE networks, which is in high
demand in Japan, South Korea and other emerging markets.
We retain our long-term Neutral recommendation on Nokia Corp.
However, it holds a Zacks #2 Rank, implying a short-term Buy