Nokia Buys out Siemens interest in NSN (as predicted); Company’s future raises many ?s

About 2 weeks ago we wrote a blog on this site titled:

Siemens Searching For NSN Buyer which might be Nokia!

We speculated that Nokia might buy NSN, rather than a private equity firm or network equipment company. Today, that happened as Nokia bought Siemens interest in NSN for just €1.7 billion (US$2.22 billion).  That seems like a low price for a half share of a vendor that generated revenues of €13.78 billion ($18 billion) and an operating margin (after one-time costs) of 5.6 percent for the full year 2012.  The deal is set to close before the end of September, after which NSN will drop ‘Siemens’ from its name: Nokia says it will unveil the infrastructure vendor’s new name once the deal is completed. 

Stephen Elop, President and CEO of Nokia, commented: “With its clear strategic focus and strong leadership team, Nokia Siemens Networks has structurally improved its operational and financial performance. Furthermore, Nokia Siemens Networks has established a clear leadership position in LTE, which provides an attractive growth opportunity. Nokia is pleased with these developments and looks forward to continue supporting these efforts to create more shareholder value for the Nokia group.”

Joe Kaeser, Siemens CFO, commented: “With this transaction, we continue our efforts to strengthen our focus on Siemens’ Core areas of Energy management, Industry and Infrastructure as well as Healthcare.  The full acquisition of Nokia Siemens Networks by Nokia offers an attractive opportunity to actively shape the telecom equipment market for the future and create sustainable value.”

Nokia Siemens Networks was established on April 1, 2007, as a joint venture combining Nokia’s Networks Business Group and Siemens’ carrier-related operations for fixed and mobile networks. Nokia Siemens Networks has since become a leading global provider of telecommunications infrastructure, deploying networks that help people stay connected in more than 150 countries around the world. The company’s focus is in offering innovative mobile broadband technology and services.

Nokia will continue to consolidate Nokia Siemens Networks for financial reporting purposes as well as continue to strengthen the company as a more independent entity.  Nokia plans to retain the existing management and governance structure at Nokia Siemens Networks, with Rajeev Suri continuing as CEO and Jesper Ovesen continuing as Executive Chairman of the Nokia Siemens Networks Board of Directors, which will adjust to the changing ownership structure.

Note that NSN had previously sold its optical networking business unit to private investment firm Marlin Equity Partners, a Los Angeles-based private investment firm.  So NSN was reduced to a pure wireless infrastructure play.

Light Reading: Six years of struggle

NSN was formed on April 1, 2007, when the joint venture partners combined their telecoms infrastructure subsidiaries (Nokia Networks and Siemens Communications) to form a European powerhouse. (See Nokia Siemens Opens on a Downer.)

But little has gone right for the venture since its inception as it battled merger pains and intense competition from Ericsson AB and Huawei Technologies Co. Ltd.: Its parents were forced to inject fresh funds into the company in 2011 and implement a massive restructuring program to keep it afloat. (See NSN Gets $1.36B & New Leader and NSN Could Lose More Than 17,000 Staff.)

But that painful restructuring process, which has involved significant job cuts and the sale of non-core parts of the company, has helped NSN improve its margins, while the focus on mobile networks, professional services and customer experience management (CEM) offerings has given the vendor a decent foothold in the global 4G networks market.  Now Nokia will need to show it hasn’t made a big mistake in using up precious cash reserves on a networks operation, while the NSN team will need to prove it has market momentum and continue to improve its financial health.

What this move doesn’t do, though, is answer all the questions about NSN’s future. Nokia notes that it will “continue to strengthen the company as a more independent entity,” a statement that leaves the door open for a separate listing of NSN in the future.

Closing Comment/Questions:

  • Will the 100% Nokia owned company be able to compete with Ericsson, Huawei and Alcatel-Lucent in the global wireless network equipment market that continues to shrink?
  • What synergies can Nokia gain from combining wireless devices/smart phones with network equipment?
  • Will the company have an opportunity to enter new markets such as M2M communications, wireless eHealth, connected cars, etc?
  • Jury is out on all of those (and other) questions about the company’s future.