Nokia Siemens Threatens 5,700 Job Losses as Cost Cutting Gets Serious

Nokia Siemens Networks (NSN) has announced it plans to cut up to 5,700 jobs globally, as it seeks to cut costs by some 500 million euro (US$740 million) a year. The mobile-network equipment vendor also announced plans to reduce its five business units to three the start of 2010, and plans to strengthen its business through strategic partnerships and acquisition opportunities.

NSN, a joint venture (JV) between Finnish handset giant Nokia and German electronics vendor Siemens, says it is aiming to provide more than just equipment to operators, as it increases its focus on the managed services market, and is targeting fresh markets in Eastern Europe, Latin America, and Africa as key areas of expansion.

The struggling vendor has also stated it is targeting "sensible, right-valued" acquisitions, although it has not specified any particular area for expansion. Bloomberg has reported this week that NSN may be on the verge of making a rival bid for the Ethernet business of Canada's bankrupt telecommunications equipment maker Nortel, challenging U.S. vendor Ciena's "stalking horse" offer of US$521 million; however, neither company has commented on the report.

Outlook and Implications

• NSN Intensifies Cost-Cutting: NSN says its latest savings drive could include cutting 7—9% of its current global workforce of some 64,000 employees, and cost reductions will also be made in its real estate, information technology, and overall administrative expenses. The network vendor says it is also targeting even larger savings in its product and service procurement costs, although it has not disclosed any figures of potential cuts in these areas. NSN, along with its European equipment vendor rivals, has been hard hit by waning demand, a result of a cut in operator spend as the ongoing economic downturn hits margins across the industry. NSN saw a 21% drop in sales in the third quarter to 2.8 billion euro, with its operating loss deepening to 1.1 billion euro, from 1 million euro a year earlier—seeing owner Nokia forced to take a 908-million-euro write-down of the value of the equipment vendor (see World: 16 October 2009: Nokia Swings to Q3 Operating Loss, Writes Down NSN b US$1.3 bil.). Nokia recently upgraded its estimates for the global network infrastructure market, predicting a fall of only 5% this year but warned that it expects Nokia Siemens' loss in market share to be bigger than previous forecasts. Sources are now suggesting that partner Siemens could face a write-down on the JV of up to 1.6 billion euro—something which will fuel further rumours that the German giant may seek to rid itself of the burden of NSN. Nokia has pledged its support, but with rumours of a further write-down and little signs of recovery in the market, NSN's owners may soon tire of the burden of the struggling JV.

• NSN Seeks Change of Strategy: NSN is cutting costs and seeking to reposition itself as a services vendor, as it struggles to offset the deepening downturn in the telecoms equipment market. NSN's restructuring plan will include the reorganisation of its five operating units into three: Business Solutions, Network Systems, and Global Services, as the vendor seeks to reposition itself, and offer more than just equipment to operators. NSN says it is looking towards a more service-oriented offering, in particular targeting the managed services market, with incoming CEO Rajeev Suri stating its customers are now seeking a partner who "engages in issues well beyond a traditional discussion of technology". Along with its European rivals, the vendor is increasingly looking to the burgeoning LTE market, particularly in emerging markets beyond Western Europe and North America (see World: 30 October 2009: Nokia Siemens Conducts LTE Tests with Four Device Vendors). NSN has also stated it is considering acquisitions "where assets would add scale to existing product areas or customer relationships", leading to some speculation it may be about to make a move for Nortel's Ethernet businesses. The bankrupt Canadian vendor has agreed to sell the assets, which will include its metro Ethernet businesses, long-haul optical transport gear, switching technology, and network management software, to U.S. company Ciena (see World: 8 October 2009: Nortel Signs Stalking Horse Agreement to Sell Ciena Optical and Carrier Ethernet Business). However, Ciena's offer of US$390 million cash and 10 million Ciena shares is a stalking horse offer, which sets a floor price—and NSN recently lost the auction for Nortel's CDMA and LTE advanced wireless operations earlier this year, leaving a mostly unused credit line. However, it is doubtful NSN will want to become involved in an aggressive bidding war for the business, against rivals with far deeper pockets.

• Breaking Point in Vendor Market Approaches: Nokia Siemens' main rivals in the mobile infrastructure industry, Sweden's Ericsson, and France-based Alcatel-Lucent, have both recently posted disappointing third-quarter earnings. World number-one vendor Ericsson recently reporting lower-than-expected earnings, blaming tough pricing conditions and slower spending by customers in emerging markets (see World: 22 October 2009: Ericsson's Q3 Earnings Down 3% as Equipment Market Slowdown Bites), while Alcatel-Lucent posted a widened third-quarter net loss, missing analyst expectations (see World: 30 October 2009: Alcatel-Lucent Q3 Loss Deepens as Vendor Crisis Continues). Reduced investments among telecom operators and increasing competition from China's Huawei and ZTE have hit the European equipment vendors hard, forcing cutbacks, and there are rumours Alcatel-Lucent may be on the verge of significant job cuts, as French trade unions are calling for strikes, saying the vendor will reduce its strong European workforce by a sixth before the end of 2010. With rumours the axe is also about to swing at Alcatel-Lucent, things are looking increasingly desperate in the European vendor market, with consolidation or casualties expected in the near future.