Major Restructuring for NSN - Analyst Blog

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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