Nokia Siemens Networks, which this week ended talks to sell a stake to buyout firms, needs to cut jobs to gain the option of independence as competition with rivals including Huawei Technologies Co. intensifies.
The phone equipment venture between Nokia Oyj (NOK1V) and Siemens AG (SIE) generated sales of about $254,000 per employee last year, 19 percent less than larger rival Ericsson AB, based on numbers from the companies’ financial reports. The figure for both manufacturers is sinking as selling prices for equipment such as base stations and packet-switching networks decline.
Nokia Siemens said this week that it plans to improve its competitiveness “as a standalone entity” while announcing the end of talks over a stake sale. The Espoo, Finland-based venture, which has been unprofitable for all but one quarter since it started in April 2007, has increased its headcount to about 73,000 from about 60,000 after additions for outsourcing and the acquisition of a Motorola Solutions Inc. unit. In Germany alone, Nokia Siemens has almost 10,000 workers.
“They haven’t fired enough,” said James Crawshaw, a London-based equity analyst at Standard & Poor’s. “Siemens historically over-engineered their products and in certain industry verticals people will pay for that, but the telecom sector isn’t prepared to pay that premium for German engineering when Chinese engineering gets the job done.”
Nokia fell 0.6 percent to 3.97 Euros at 11:46 a.m. in Helsinki trading. Siemens declined 0.6 percent to 92.87 Euros in Frankfurt.
‘Options’
While an initial public offering for Nokia Siemens is a possibility, it could only happen after the company becomes profitable, said people familiar with the situation, declining to be named because the deliberations are private.
Ben Roome, a Nokia Siemens spokesman, declined to comment. Operating matters regarding Nokia Siemens are the responsibility of management, said Wolfram Trost, a spokesman for Siemens.
“The current focus is on improving profitability and managing costs,” said James Etheridge, a Nokia spokesman, declining to discuss the possibility of job eliminations.
Nokia said July 12 that it’s open to other ownership options for the 50-50 venture, without elaborating. The unit may report second-quarter earnings before interest and taxes of 82.7 million Euros ($117 million) on revenue of 3.3 billion Euros, JPMorgan Cazenove analyst Sandeep Deshpande wrote in a July 13 report. Nokia, the biggest maker of mobile phones by volume, reports earnings July 21.
Nokia, which has more shared interest with Nokia Siemens since both sell to phone companies, is paring down assets that aren’t essential to its main devices product lines.
Cash
Nokia and Siemens had a combined total of more than 26 billion Euros in cash and short-term investments at March 31. That money could help Nokia Siemens to buy out employees whose qualifications don’t fit the current business profile, make better offers to customers, or acquire assets.
“I don’t think it’s an IPO-ready company,” said Bengt Nordstroem, who heads Stockholm-based telecommunications consultant Northstream AB. “There is strong growth in mobile broadband, but also tough competition so prices are still very low.”
The joint venture has lost 3.35 billion Euros from operations, restructuring, and impairment charges for Siemens since it was formed. Siemens Chief Financial Officer Joe Kaeser has repeatedly said that telecommunications is no longer a core business for the company.
Market Share
Nokia Siemens and Ericsson have focused on wireless network equipment such as base stations and core networks and have expanded in software and services to a greater extent than competitors Alcatel-Lucent SA, Huawei and ZTE Corp.
Nokia Siemens gets about half its revenue from services, including running entire networks remotely from India and Portugal. Ericsson counts about 40 percent of its revenue as services.
Nokia Siemens had 20.4 percent of the wireless equipment market in the first quarter, up from 18.2 percent a year earlier, according to Redwood Shores, California-based researcher Dell’Oro Group. Huawei was almost tied with Nokia Siemens at 20.3 percent and Ericsson had 34.5 percent. Alcatel- Lucent’s share was 13.7 percent.
Nokia Siemens announced in November 2009 that it would eliminate between 7 percent and 9 percent of the 64,000 positions it had at the time. The aim was to cut 500 million Euros in annual costs by the end of this year. It has reported more than 1.05 billion Euros in operating losses since the job cuts announcement.
“They need to remove the question mark around the ownership structure,” Sylvain Fabre, an analyst at Stamford, Connecticut-based Gartner Inc., said in a phone interview. “The first thing you learn in business school is you never do 50-50, you do at least 51-49. Until you really know who’s in charge you don’t really know what direction is ultimately imposed in the company.”
They appear to have gone into "Coffin Corner", and be unable to maintain the critical mass' needed to sustain.
ReplyDeleteMercifully, the Joint Venture has only a couple of years to live. My belief, however is that Huawei will jump out of the swamp like an alligator on steroids, and steal the UK market.