Nokia Siemens Sees Few Survivors in Network Industry Shakeup
Nokia Siemens Networks, the telecommunications equipment venture between Finland’s Nokia Oyj (NOK1V) and Siemens AG (SIE) of Germany, predicts three profitable vendors will outlive consolidation in the industry, according to its chief executive officer.
“There’s space for three long-term profitable companies that can thrive over the next few years,” Rajeev Suri said on the eve of the Mobile World Congress in Barcelona. “The players who make it will need to be focused and lean,” he said, without elaborating on who may be left standing.
The six-year-old company’s German parent is pushing for an exit. Talks about the future of Nokia Siemens, which competes with Ericsson AB and Alcatel-Lucent SA as well as Asian suppliers Huawei Technologies Co. and ZTE Corp. (000063), have accelerated as a shareholder agreement comes up for renewal in April, people familiar with the matter said this month.
One scenario under discussion is a joint buyout of Munich- based Siemens’s 50 percent stake by Nokia and a strategic partner, people familiar with the situation said this month. Nokia Siemens held exploratory talks with Paris-based competitor Alcatel-Lucent SA, the people said.
The French vendor last week named Vodafone Group Plc (VOD) executive Michel Combes as CEO to replace Ben Verwaayen, who had agreed to step down after his three-year turnaround plan failed. The French government is meanwhile considering options for Alcatel-Lucent including an investment in the company, people with knowledge of the deliberations said last week.
“I said already in October 2009, when I first started this job, that the industry would consolidate,” Suri said. “What we’ve seen since in the results of some of our competitors is the first step. It’s already a form of consolidation.”
Ericsson CEO Hans Vestberg said today at the Barcelona convention that he’s seen “competition on fewer segments, that footprints have become smaller due to consolidation in the industry.” Still, “consolidation isn’t easy,” he said, given Ericsson’s experience with Nortel Networks Corp.’s North American assets, which it bought in 2009 to boost U.S. sales.
“Integrating Nortel, that wasn’t easy. It’s hard to do these integrations,” Vestberg said. “If we’ve got a billion to spend, we’d rather put it into R&D than to buy another company. That doesn’t mean we won’t look at M&A to grow our portfolio.”
Nokia added 1.5 percent to 2.89 euros at 11:45 in Helsinki. Siemens rose 1.1 percent in Frankfurt, while Ericsson climbed 0.8 percent on the Stockholm exchange.
Nokia Siemens, which in 2011 announced plans to eliminate 17,000 jobs, is on track to exceed its target of saving 1 billion euros ($1.3 billion) in operating expenses by the end of this year, Suri said. The company aims to seize growth opportunities when the market is growing and focus on improving margins where industry revenue doesn’t increase, he said.
The company, which has sold assets to refocus on wireless infrastructure, wants to boost its services business. It said yesterday it hired Eva Elmstedt from Ericsson to head the unit.
“You can’t say in this market that you’ll be an end-to-end player just because you were a decade ago, and you can’t keep selling the same products just because you did in the past,” Suri said. “We once had strong growth in our sector, but that is no longer the case. That means business needs to be managed differently.”
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