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Posted by Dan Bieler on December 1, 2011
Nokia Seimens Networks’ top management has finally pulled the emergency brakes, after months of unsuccessful attempts to find a buyer. Going forward, NSN will focus on mobile network infrastructure and the services market. All other areas are non-core and subject to disposal. We estimate that about two-thirds of NSN’s current portfolio will remain in this new focus area. NSN will retain an attractive product and services portfolio and innovative solutions, as for instance its Liquid Net offering. However, some elements, like convergence offerings, will be difficult to pursue credibly in the future.
In our view, the new focus NSN is taking is right:
These changes are radical. But radical action is required to save the patient: Since its inception more than four years ago, NSN can only report a handful of quarters with positive operating profits. Of course, long-term negative cash flow means death to any business. NSN was only kept afloat by cash injections by its parent companies. Just this summer, Nokia and Siemens each injected €500 million. Still, competitive pressure from the likes of Huawei, ZTE, and Ericsson is too much for NSN’s cost basis.
Source: company reports (non-IFRS)
Despite the clearer strategic focus and cost savings, we see several challenges that need addressing:
The announcement does not come unexpected — not even to most of NSN’s employees. After many quarters of uncertainty, NSN’s strategic repositioning is sending out a clear message that management is ready to tackle some key challenges and is prepared to change the direction of the company. Yet, as we outlined, the next challenges are already visible.
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