There are reasons to be concerned about the future of Nokia Siemens Networks (NSN).\u00a0 Since the merger of the Nokia and Siemens telecoms infrastructure businesses in 2007, the Joint Venture never had a single profitable year:\u00a0 operational losses were<\/p>\n
-\u20ac1.3bn, -\u20ac0.3bn, -\u20ac1.6bn, -\u20ac0.7bn, -\u20ac0.3bn<\/p>\n
in the years 2007, 2008, 2009, 2010 and 2011 respectively.\u00a0The cumulative operational loss over 5 years is -\u20ac4.2bn. The average annual loss amounts to -\u20ac0.847bn over the period.<\/p>\n
So something radical had to happen. It did. In November 2011, NSN announced that it would refocus its business on mobile broadband.\u00a0 As part of the re-organisation and strategic shift, the company announced that it would get rid of 17,000 employees worldwide.\u00a0 A few thousands more will be transferred to other firms with the carving out and selling of a number of product lines. In total, about 1 employee out of 3 should go.<\/p>\n
At least two business lines are expected to be sold to third parties: the fixed network business and the BSS \/ Application business.\u00a0 We have reasons to believe that since 2007, the fixed line portfolio, traditionally a strength that came from the Siemens side, has been an underinvested area and lost ground at NSN; today, the big names in that space are called Alcatel-Lucent, Cisco and Huawei to name a few.\u00a0 In the BSS \/ Application space, it has certainly become very hard for NSN to compete against pure-play companies with an IT background, like Comverse, IBM and other firms.<\/p>\n
Today, these two business lines don\u2019t make more than 15% of the NSN turnover. \u00a0If 1 in 3 employees leave the company, costs should be reduced by about 30%.\u00a0 Overall, this should give NSN a 15% points improvement in its operating profit.\u00a0 As profit margin has ranged between -2% to -13% over the last 5 years, NSN might be able to turn into the black and reach a 5-10% profit margin at last.<\/p>\n
But can the NSN management succeed this time?\u00a0 Clearly there are 4 major risks:<\/p>\n
Can NSN succeed?\u00a0 It certainly can.\u00a0 NSN has three key strengths.<\/p>\n
The new NSN strategy will build up on these strengths. It must succeeds.<\/p>\n
The Nokia and Siemens telecoms infrastructure businesses have seen many re-organisation since 2001.\u00a0 This one will be the one before the last. If the transformation is not successful, then there will be very few options left for NSN.\u00a0 One option would be a merger with Alcaltel-Lucent, to create a new world champion with a strong fixed line business on the Alcatel side, and a strong mobile business on the NSN side.\u00a0 The other option would be a merger with a Chinese company, most likely ZTE.<\/p>\n
We trust that the NSN management has the skills to make the turn-around a success. The alternative would mean tens of thousands of more lay-offs worldwide, and in Europe in particular.\u00a0 Which is the last thing that Europe needs right now.<\/p>\n