Siemens Has No Plans For NSN IPO

Siemens' chief financial officer, Joe Kaeser, said on German TV station Deutsches Anleger Fernsehen, there are no plans to bring Nokia Siemens Networks (NSN) to the market for an IPO, as it would hypothetically be regarded as too early. CFW believes NSN is waiting for improved financial performance before considering an IPO. However, because of continued low-price competition from Chinese infrastructure vendors such as Huawei and ZTE, the firm's problems will not be short-lived. Nokia Siemens Networks was created in 2007 after the merger of the telecoms equipment businesses of Nokia, the world's largest mobile phone producer, and industrial group Siemens. NSN was formed on the basis of 50-50 ownership and the deal was due to last six years, with the two firms expecting to quickly reach double-digit margins in that time. However, NSN struggled to make a profit, reporting just four profitable quarters since Q107, and an operating loss of EUR3.4bn from Q107-Q310. Although some of these losses are related to special items as part of the restructuring process, the venture experienced consistent operating losses and a decrease in net sales.

Hard Times: Nokia Siemens Networks Financial Performance, Q107-Q310

Source: Source: Nokia

The financial performance of NSN raises significant questions about Kaeser's assessment that an IPO is a matter of timing. NSN has lost market share and suffered from decreased margins, as a result of the low price competition from Huawei and ZTE. CFW expects low price competition to remain a problem for NSN and other European telecoms infrastructure vendors in the medium term, as Huawei and ZTE's global aspirations are backed by buyer credits from China Development Bank. We therefore believe that in order for NSN to become an attractive proposition for an IPO it will need to undertake major restructuring.

There is however potential for NSN to reverse its poor performance. The GSA reports 128 operators in 52 countries are committed to commercial LTE deployments, with a further 52 operators in 18 countries set to pilot or trial pre-commercial systems. Whereas NSN lost out in 2G and 3G deployments across Africa and other emerging regions, many LTE deployments will be taking place in its core European markets, representing an opportunity for growth. NSN achieved some successes in 2010, signing a USD7bn contract in July for LTE infrastructure deployment for wholesale network LightSquared in North America. However, globally NSN has not been a market leader in LTE, with Huawei and Ericsson ahead.

The performance of NSN has been a major concern for Siemens, with rumours that Siemens has been looking for an exit dating back to when Peter Loescher took over as chief executive officer in 2007, shortly after the venture started. Nokia also said in August 2010 that it was increasingly focused on mobile phones and was ready to cut its stake. An IPO is not the only possibility, with NSN reporting in August 2010 that it was in negotiations with private equity firms to sell a stake; Nokia and Siemens would retain a majority. According to a report in German magazine Manager Magazin in mid-December 2010, only Blackstone Group and The Gores Group remained in talks about acquiring a 30% minority stake in NSN. Whether an IPO or PE investment, NSN faces difficulties in a highly competitive market that can only be faced with a clear strategy and significant restructuring.