Nokia and Siemens join forces

PUBLISHED : Tuesday, 20 June, 2006, 12:00am
UPDATED : Tuesday, 20 June, 2006, 12:00am


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Two of Europe's largest telecommunications firms - Nokia and Siemens - will combine their network services and equipment units to form the world's third-largest telecommunications infrastructure company.

The two companies said the merger would help them compete against market leader Ericsson and the emergence of Asian telecommunications firms which had been gaining market share at the expense of the industry's more established players.

The move also reflects a trend towards convergence in the industry, where equipment manufacturers and service providers are expected to offer a full range of fixed-line and wireless products so that operators can offer a so-called quadruple play of fixed and mobile voice calls, internet access and pay-television services.

'Consolidation is the name of the game,' Siemens chief executive Klaus Kleinfeld said. 'It is driven by combining information technology with communications, the convergence of fixed and mobile communications with entertainment and the emergence of new competitors from Asia.'

The 50-50 joint venture, Nokia Siemens Networks, will create a company with Euro15.8 billion ($154.4 billion) in combined revenues, making it the world's third-largest telecommunications infrastructure company and the second-largest in the mobile infrastructure and network services market.

The Nokia-Siemens merger follows the GBP1.2 billion ($17.1 billion) purchase of Marconi by overall market leader Ericsson last year, and the US$13.4 billion purchase of Lucent Technologies by Paris-based broadband internet equipment manufacturer Alcatel in April.

In a webcast yesterday, Mr Kleinfeld also referred to competition from Asia but did not mention specific companies.

Chinese telecommunications equipment manufacturers Huawei Technologies and ZTE Corp have announced a string of network equipment and management contracts which threaten the market dominance of the established European players.

Siemens and Nokia expect their joint venture to compete with their lower-cost Chinese competitors, thanks to consolidated overheads, research and development expenses and up to 9,000 job losses from the new company's initial head count of 60,000. Siemens workers will make up about 40,000 staff in the new company.

'We are not yet in a position to say which factories will close or where the job cuts will come from,' said incoming Nokia Siemens chief executive Simon Beresford-Wylie. 'But this is a fact of the matter.'

Mr Kleinfeld added: 'The employees clearly see that our competitiveness will be strengthened [with this merger] and that will bring many opportunities for the company going forward.'

Nokia's mobile networks unit will bring about Euro6.56 billion in revenue to the joint venture, compared with Euro9.2 billion from Siemens.

The two companies said the equal 50-50 split reflected Nokia's higher profit margin of 13 per cent, compared with only 3.5 per cent at Siemens.

Nokia Siemens expects to generate about 70 per cent of its revenue from wireless technologies such as GSM, Edge and Wideband CDMA, and about 22 per cent from fixed-line equipment sales.

The new company will be profitable from the outset, excluding restructuring charges of Euro1.5 billion which will be incurred during the first two years.

The joint-venture deal is expected to be concluded before the end of the year.