Nokia Siemens Networks, the unprofitable telephone-equipment venture of Nokia Oyj and Siemens AG, will eliminate 17,000 jobs worldwide in its biggest cull to narrow the gap with market leader Ericsson AB.
The reduction, equivalent to about 23 percent of its workforce, will be completed by the end of 2013, when Nokia Siemens aims to cut 1 billion euros ($1.3 billion) in annual operating expenses and production costs. Nokia Siemens will focus on mobile broadband and services, and aims to divest or “manage for value” units that aren’t central to its plans, Espoo, Finland-based Nokia said today.
Nokia Siemens received a cash injection of 1 billion euros from its parent companies in September as Jesper Ovesen, the former chief financial officer of TDC A/S, was named to oversee the restructuring as executive chairman. The venture, set up in April 2007 to compete against Ericsson and Chinese rivals such as Huawei Technologies Co., has fallen behind and has been unprofitable in all but one quarter.
“If you look at the last two to three years, it’s become clear that Ericsson and Huawei are quite a long way ahead of the competition,” said Mark Newman, chief research officer at London-based Informa Telecoms & Media. “NSN has struggled to remain competitive. It’s gone through periods of being extremely aggressive in terms of pitching for new business because it realized it needed to win new contracts.”
Siemens fell 1.7 percent to 68 euros in Frankfurt trading. Nokia fell 2.3 percent to 4.09 euros in Helsinki.
“I think this will be enough,” Sami Sarkamies, a Helsinki-based analyst with Nordea Bank, said in an interview. “It was probably more than people expected. The big question is how much will be divestments versus cost savings, which affects how much revenue they are going to lose. With these efforts they should be able to get above 5 percent margins for earnings before interest and taxes by late 2012 or 2013.”
Siemens and Nokia abandoned talks with private-equity companies in July after the buyout firms failed to come up with a compelling offer. The companies said in September that Nokia Siemens would “become a more independent entity.”
Nokia Siemens had a 13.2 percent market share in 2010, tied with Alcatel-Lucent for third place in the mobile infrastructure market, according to researcher Gartner Inc. Ericsson was first with 34.1 percent and Huawei second at 15.6 percent. The company is “a very strong number two” in managed services, Frankfurt-based Gartner analyst Bettina Tratz-Ryan said in an interview.
“They have a ‘me-too’ strategy and they need to provide more in order to become successful,” Tratz-Ryan said.
Nokia Siemens employed almost 75,000 people as of Sept. 30. The company generated sales of about $254,000 per employee last year, 19 percent less than larger rival Ericsson, based on numbers from the companies’ financial reports. The figure for both manufacturers is sinking as prices for equipment such as base stations and packet-switching networks decline.
Nokia Siemens said it plans to simplify its organization, consolidate sites and functions, and strip out more jobs from the integration of Motorola Solutions Inc. units acquired this year.
The company announced in August that it planned to cut as many as 1,500 positions from the Motorola units, which added workers in Arlington Heights, Illinois. The company also has large units in Espoo, Finland, and Munich, Germany. It makes equipment at locations including Shanghai, Beijing and Suzhou in China; Bruchsal, Germany; Chennai, India; and Oulu, Finland, according to a Nokia filing.
“They are turning themselves into a takeover candidate,” Georg Nassauer, head of the German works council at Nokia Siemens, said by telephone. “NSN needs new management. They have proved they aren’t up to the job.”
Nokia Siemens hasn’t decided how many jobs will be cut per country, spokeswoman Jozefa Terloo said from Munich. Negotiations with worker representatives will start immediately, she said. In Germany, the venture has about 10,000 employees.
“We need to take the necessary steps to maintain long-term competitiveness and improve profitability in a challenging telecommunications market,” Chief Executive Officer Rajeev Suri said in a statement.
Assets that are peripheral to the new strategy include “a lot of wireline areas” as well as a unit that sells IPTV services to carriers, Suri said in an interview, adding that he doesn’t anticipate announcements on a possible share sale or change of ownership in the near future.
“We got a billion euros of equity committed by parents in September to support new strategy,” Suri said. “We have a new executive chairman that sort of paves the way for independence. Apart from that, nothing else is on the horizon.”