Nokia and Siemens Announce Joint Venture

By Mark Tran

Guardian, 19 June 2006

The telecoms equipment sector today took a further step towards consolidation as Nokia and Siemens agreed to combine their mobile and fixed-line phone network equipment businesses.

The joint venture, to be called Nokia Siemens Networks, will have annual revenues of €15.8bn and compete with the industry leader, Cisco Systems, and the newly merged Alcatel-Lucent.

Finland's Nokia and Germany's Siemens said they expected to make savings of €1.5bn (£1.025bn) annually by 2010. They also expect to cut 10 to 15% of the combined businesses' 60,000 staff over the next four years.

"This joint venture is an important step to strengthen our position in the market sustainably and to enable us to offer the best state-of-the-art converged technologies and services to our customers," said Klaus Kleinfeld, the chief executive of Siemens.
Nokia Siemens Networks will have its headquarters in Finland and be led by Simon Beresford-Wylie, currently in charge of Nokia's networks division. The new company will also have a regional headquarters in Munich.

"The communications industry is converging, and a strong and independent Nokia Siemens Networks will be ideally positioned to help customers lower costs and grow revenue while managing the challenges of converging technology," said Nokia's Olli-Pekka Kallasvuo, who will serve as chairman of the new firm.

Analysts said pulling off the merger would be tricky.
"I like the idea but I think it's risky. On the wireless side Nokia is sub-scale and putting them together will help," Richard Windsor of Normura told Reuters.

"But in wireline (fixed-line) Nokia has no business whatsoever and it's now being tasked with turning around a business that Siemens failed to do over the last six years. I don't say they can't do it, but it will be tricky."

Paul MacGregor, UK managing director of the global project management consultancy PIPC, said: "This will be an expensive and risky merger and tough for management to get real value out of the business in what is an increasingly competitive space."

"In the short term, shareholders could suffer as this is a long-haul deal where all the benefits seem to centre on economies of scale and hitting the rapidly converging fixed and wireless markets."

This is the second big merger in the telecoms equipment sector this year.

In April, Alcatel of France and Lucent of the US announced a merger, leading to talk of further consolidation as telephone equipment makers come under pressure from Asian firms such as China's Huawei.