Nokia and Siemens merge networks businesses

By Steve Malone

Posted on 19 Jun 2006 at 13:36

European telecoms giants Nokia and Siemens are to merge their communications networks interests into a new business to be called Nokia Siemens Networks.

The new operation, which will be owned jointly by the two parent companies, will inherit the assets of Nokia's Networks Business Group and the carrier-related operations of Siemens to create the fourth largest mobile and fixed networks maker with combined annual revenues of €15.8 billion (£10.7 billion) and around 60,000 employees.

The company will be the second biggest in mobile infrastructure, second in services, third in fixed infrastructure and the third largest in the overall telecommunications infrastructure market. The deal gives Nokia - already strong in mobile infrastructure - an entry into the fixed line business and Siemens a chance to spin off its telecoms business which has been under pressure from price cutting across the sector.

The deal follows a similar $13 billion stock swap earlier this year between rivals Alcatel of France and America's Lucent Technologies although in this case no money is changing hands.

Through combining their network operations, the companies are hoping to take advantage of the global movement towards the convergence of mobile and fixed telecoms services. Over the past months there have been a number of companies which have announced they are planning triple or quadruple play - mobile, fixed, broadband and TV - strategies, and Nokia Siemens Networks will want to become a key player in providing the infrastructure

On the positive side, Nokia Siemens Networks will have a significant R&D presence and is well positioned to capitalise on the next generation fixed and mobile product platforms and services. Nokia Siemens Networks also says it will have a complementary global base of customers, a global reach in both developed and emerging markets, and one of the industry's largest and most experienced service organisations.

However, there will be cost savings as well. The companies estimate they will be able to save €1.5 billion a year by 2010 by cutting overlapping functions, consolidation and better use of sales and marketing organizations, reduction of overhead costs, sourcing benefits, and greater efficiencies in R&D.

A substantial portion of these will be achieved in the first two years as the new organisation cuts the workforce by between 10 to 15 per cent. However, the deal is likely to cost Siemens €1.5 billion in restructuring costs by 2010.

The market seemed to like the deal. Shares in Siemens leapt 8.3 per cent to €68.03 and Nokia was up 3.1 per cent at €16.14 on the news.