Nokia Siemens Networks, the struggling telecommunications gear joint venture between Finland’s Nokia Corp. and Germany’s Siemens AG, announced it is cutting 17,000 jobs as it tries to restructure the company with a focus on mobile broadband. The massive layoffs will cut 23 percent of the NSN’s workforce and will save the company about 1 billion euros, or $1.3 billion, in annual operating expenses and production costs by the end of 2013 when compared to 2011. But it’s unclear if NSN’s moves will be enough for it to stay competitive.
NSN said its future is in delivering mobile broadband, and it is restructuring the company to provide end-to-end mobile network infrastructure and services. It plans to bulk up on services and divest or “manage for value” business areas that are not consistent with the new strategy. It’s unclear where all the job reductions will take place. But CEO Rajeev Suri said the cuts were necessary to maintain competitiveness and improve profitability. Said Suri:
Our goal is to provide the world’s most efficient mobile networks, the intelligence to maximize the value of those networks, and the services capability to make it all work seamlessly. Despite the need to restructure parts of our company, our commitment to research and development remains unchanged, with investment in mobile broadband expected to increase over the coming years. As we look towards the prospect of an independent future, we need to take action now to improve our profitability and cash generation. These planned reductions are regrettable but necessary – and it is our goal to make them in a fair and responsible way, providing the support we can to employees and communities.
As part of its restructuring, NSN will eliminate its matrix organizational structure and will streamline its overall business, consolidating operations and functions to fewer sites and finding efficiencies and cost synergies, including from the further integration of Motorola’s wireless assets.
The parent companies of NSN tried earlier this year to find a private equity buyer for the joint venture, but no takers emerged. The companies instead chose to inject another $1 billion into the company in September. Nokia Siemens has faced mounting competition from Huawei as well as from its traditional rivals Ericsson and Alcatel-Lucent, consolidation in the sector, and the rise of a monolithic wireless standard (LTE), which has made it hard for the equipment market to support a multitude of vendors. Alcatel-Lucent has struggled, while Nortel went bankrupt and Motorola sold off elements of its wireless gear business to NSN.
Though NSN may be making all the right noises about mobile broadband, it’s struggled in that market as well. While NSN has some important international LTE contracts, most notably with NTT Docomo, the U.S. has taken the lead in the deployment of LTE and mobile broadband — a role usually reserved for Europe and Asia — due in large part to the iPhone and Android devices. NSN, however, is relatively weak in North America, and it saw every single one of the blockbuster network contracts go to Ericsson, Alcatel-Lucent and even new entrant Samsung. NSN sought to buy market share by bidding on Nortel’s sizable networks business, but it was outbid by Ericsson. Motorola was its consolation prize, giving it a much bigger presence in the Americas and Japan but still not quite the breadth and scale of Ericsson or Huawei.
In the third quarter NSN posted revenues of $4.7 billion, up 16 percent, while managing to cut its operating loss to $157 million. The improved performance was due in part to sales of former Motorola products and services. The company also received a new executive chairman, Jesper Ovesen, the former CFO of TDC A/S. But overall, it has been an unprofitable venture, and NSN lost close to $1 billion last year. The new moves should help, but the fact remains that competition is fierce and NSN is still struggling to keep up.