Nokia-Siemens Desperate, Cuts 17,000 Jobs Just in Time for the Holidays

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Nokia-Siemens Networks (NSN) announced Wednesday that it will cut 17,000 jobs globally and restructure its business in a bid to reduce operating costs by $1.35 billion by the end of 2013, as the company attempts to reach profitability and position itself for a possible IPO in coming years. [1] The joint-venture between Nokia and Siemens, which was created four years ago, is scheduled to come to an end in 2013. The company manufactures both wireline and wireless network infrastructure, and competes with Ercisson, Huawei, Alcatel Lucent, Cisco (NASDAQ:CSCO) and Juniper (NYSE:JNPR) globally.

The company’s focus has been primarily on revenue generation in recent years and they have been fairly successful in this regard. However, of the last five quarters of revenue growth that the company has recorded, it managed to turn a profit in only one of them. Nokia and Siemens have tried hard to sell off or at least unload a controlling stake in the unprofitable venture to private-equity firms, but the talks have yielded much fruit. Now, with the only viable option remaining being an IPO, the company is looking to position itself for profitability by divesting its stake or closing down operations in non-core businesses it sees little value in.

See our complete analysis for Nokia stock here

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NSN to possibly downsize its landline division

Trefis model shows that the company’s wireless division brings over $5 billion in revenues, which constitutes more than 80% of its combined wireless and wireline revenues. While the company declined to comment on where it plans to cut its jobs, we believe that a majority of the job cuts will come from its landline business as the company tries to focus completely on its core business, the wireless division.

The wireless infrastructure market has seen the emergence of competition from Chinese manufacturers such as Huawei, who have taken market share away from European rivals such as NSN and Alcatel-Lucent through aggressive pricing. Only Ericsson has managed to show a consistent revenue growth over the last few quarters. The primary reason for this has been the economy of scale that Ericsson has going in its favor. Ericsson recently reported that its share of the global mobile infrastructure market now stands at 36%, twice as much as its nearest #2 competitor. [2]

Margin improvement will help its cause

It might seem that cutting around a quarter of existing jobs may not help NSN’s cause if scale is its problem. However, since a majority of the job cuts would not come from the mobile broadband division but from its fixedline business as discussed, the restructuring may help the company cut losses in a non-performing division and attract contracts from mobile operators who were initially fearful of doing business with a vendor with an uncertain future. Also, improved margins from the cost cutting will increase its chances at a successful IPO or attracting prospective bidders.

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Notes:
  1. Nokia Siemens to Cut Work Force by 17,000, WSJ, November 24th, 2011 []
  2. Ericsson boosts infrastructure market share to 36%, Yahoo! News, November 9th, 2011 []