Nokia and Siemens Confirm Interest in Selling NSN Stake

Nokia and Siemens have confirmed media reports that they may sell up to one-third of their joint venture (JV), Nokia Siemens Networks (NSN), to a private investor. The announcement follows reports at the end of July 2010 that the partners were planning to divest a significant portion of the telecoms equipment vendor, which has led to further speculation that the move could be a prelude to a stock market flotation in 2013, as reported in the Financial Times (see World: 2 August 2010: Nokia Siemens Could Sell Stake in Return for US$1-Bil. Investment—Report).

Nokia's chief financial officer, Timo Ihamuotila, told the U.K. financial daily that the world's largest handset vendor is always willing to talk to those who want to "bring ideas and capital to the industry", but stressed that both partners will continue as shareholders of the JV "in any likely scenario".

The chief executive officer (CEO) of NSN, Rajeev Suri, told the newspaper that while a private equity investment would give the business "greater strength and flexibility", adding that there are a number of private equity companies out there that have deep telecommunications infrastructure knowledge, fresh capital is not essential as the vendor is "looking not just for financial investment, but also for new ideas". The CEO also discussed the company's work with Nokia and Telefónica on the Smartphone Experience Lab, which was recently opened in Spain, saying the collaboration is busy addressing the challenges of the growing use of smartphones and the accompanying stress on mobile broadband networks.

Outlook and Implications

• NSN Looks to a Potential Flotation: The report, which initially appeared in the Wall Street Journal at the end of last month, claimed that a number of private investment groups, including Silver Lake Partners, TPG, Blackstone, Bain Capital, and KKR, were talking to NSN about a potential deal, which could see up to one-third of the JV sold for some US$1 billion. The current 50:50 JV deal between Nokia and Siemens expires in 2013 when the Finnish handset giant and the German engineering firm have the opportunity to renegotiate their agreement or divest their interests. This renegotiation could also give the partners an opportunity to float NSN on the stock markets or even sell the JV in a trade sale. Since the global economic downturn began to hit NSN hard, with operator orders falling and sending profits into freefall, there has been much speculation that either Nokia or Siemens would seek to exit the ailing JV. However, neither company was desperate enough to sell its stake at a devalued price and, now that the prospects for the vendor market are improving, there is a general feeling that if Nokia or Siemens was going to bail out of the JV, they would have done so by now.

• Signs of Long-Awaited Improvement in Vendor Market: NSN recently announced that second-quarter revenue fell 5% year-on-year (y/y) and is still forecasting no growth in the telecoms equipment market this year as the vendor continues to struggle with a global components shortage, which is exacerbating the continuing lull in operator spend due to the economic downturn (see World: 23 July 2010: Nokia's Q2 Operating Profit Drops 15%, Fuelling Speculation About Future of CEO). NSN agreed last month to buy Motorola’s wireless networks business, which will see the JV gain the majority of the struggling U.S. giant's wireless network infrastructure assets, including a large global footprint in CDMA networking (see World: 20 July 2010: Nokia Siemens and Motorola Confirm US$1.2-Bil. Wireless Infrastructure Asset Deal). NSN says the deal supports its plan to focus on six large markets, including the United States and Japan, and better compete with its rivals, which include market leader Ericsson, France-based Alcatel-Lucent, and China’s Huawei and ZTE. NSN claims that the unspecified private equity approaches were largely unsolicited, reflecting the progress the company is making as a potential investment opportunity.