NSN: Moving on the Right Track

It is almost 10 months since Nokia Siemens Networks (NSN) announced its global restructuring program. The company is doing well on divesting its non-core activities and workforce reduction but the focus needs to be more on increasing profitable orders in broadband, 3G, and LTE. This is not an easy task considering the fact that the wireless infrastructure market is forecasted for a flat growth in 2012.

The company needs to focus on innovation and come up with some great products apart from Single RAN Advanced, CEM (customer experience management), and Liquid Net which can revolutionize the market and help NSN to increase its market share in mobile broadband and services. Not an easy task considering the fact that Alcatel-Lucent and Chinese companies Huawei and ZTE have realigned their business towards mobile broadband and are doing well.

In November last year, NSN launched an extensive global restructuring program focusing on 3 key strategies-end-to-end mobile network infrastructure and services with emphasis on mobile broadband and services; significant operating expense and production overhead savings; and global workforce reduction of approximately 17,000.

The company plans to realign its business to focus on mobile broadband (including optical), customer experience management, and services. Focus was to reduce its annualized operating expenses and production overheads by Euro 1 bn by the end of 2013, compared to the end of 2011.

The savings for NSN are to come largely from organizational streamlining but the company will also target areas such as real estate, information technology, product and service procurement costs, overall general and administrative expenses, and a significant reduction of suppliers in order to further lower costs and improve quality.

Focus was also on reducing its global workforce by approximately 17,000 by the end of 2013 by aligning the company's workforce with its new strategy.

“We believe that the future of our industry is in mobile broadband and services and we aim to be an undisputed leader in these areas. At the same time, we need to take the necessary steps to maintain long-term competitiveness and improve profitability in a challenging telecommunications market,” says Rajeev Suri, chief executive officer, Nokia Siemens Networks during global restructuring announcement.

Divesting Non-Core Activities

In 2012, NSN seriously focused on divesting non-core activities and divested microwave transport to DragaonWave, fixedline broadband business to ADTRAN, and mobile network OSS and SDM activities in Finland to Tieto.

The year of 2010 was focused on acquisition but 2011 and 2012 were focused on divestment for NSN. In 2011, Nokia Siemens Networks completed its acquisition of Motorola Solutions' Networks assets paying $975 mn in cash. Even the responsibility for supporting customers of Motorola Solutions' GSM, CDMA, WCDMA, WiMax, and LTE products and services was transferred to Nokia Siemens Networks. The acquisition strengthened NSN's position in key regions, particularly North America and Japan as well as with some of the world's major service providers.

Based on revenue, the addition of Motorola Solutions' Networks assets makes Nokia the third largest wireless infrastructure vendor in the US and the leading non-Japanese wireless vendor in Japan. In addition, the acquisition reinforces NSN's position as the world's second largest wireless infrastructure and services provider.

As part of the deal, responsibility for supporting 50 operators across 52 countries as well as approximately 6,900 employees were to be taken care by NSN. In addition, NSN was also acquiring a number of research and development facilities including sites in the US, China, Russia, India, and the UK.

But the scenario started to change by the end of 2011 and the company had no other option but to divest its non-core activities as this helped in bringing more flexibility and generating more cash for the company.

In the month of June 2012, NSN completed sale of its microwave transport business, including associated operational support systems (OSS) and related support functions to DragonWave. The company also signed the 'Master Acquisition Agreement' whereby DragonWave would become the preferred, strategic supplier to NSN of packet microwave and related products, and the companies would jointly coordinate technology development activities.

Nokia Siemens Networks and DragonWave believe the proposed acquisition and supply agreements would accelerate innovation in backhaul products and support world class microwave solutions for mobile operators. The acquisition of the business in China is expected to be completed in the second half of 2012, once all of the licenses and permissions to do so are in place.

Employees of Nokia Siemens Networks based in Shanghai would transfer to DragonWave at that time. As part of the proposed acquisition, the companies expect approximately 360 Nokia Siemens Networks employees, mainly based in Milan, Italy and Shanghai, China, to transfer to DragonWave.

On May 7, 2012 Nokia Siemens Networks completed sale of its fixed line broadband access business and associated professional services and network management solutions to ADTRAN, a leading provider of next generation networking solutions. The planned acquisition would include broadband access intellectual properties, technologies and the established customer base.

As part of this planned transaction, up to approximately 400 people, including engineering, R&D, sales and professional services employees, are expected to be transferred to ADTRAN globally. The agreement also includes provisions which would allow ADTRAN solutions to be incorporated by Nokia Siemens Networks into its customer propositions, broadening ADTRAN's business opportunities. NSN has also transferred approximately 340 employees globally in engineering, R&D, sales and professional services to ADTRAN.

On April 2, 2012 Nokia Siemens Networks announced that Tieto has completed the transaction to outsource part of the maintenance, technical support and R&D for Nokia Siemens Networks' mobile network Operations Support System (OSS) and Subscriber Data Management (SDM) activities in Finland. As part of the planned outsourcing, approximately 240 employees who are working primarily in R&D in Tampere and Espoo will also transfer to Tieto as existing employees. The planned transaction will strengthen Tieto's position as an outsourcing provider of both R&D and IT services.

On March 7, 2012 CN TETRAGEN, a privately held Spanish technology holding, has acquired Nokia Siemens Networks' proprietary, fixed-wireless broadband business, Expedience. Under the terms of the transaction, CN TETRAGEN acquired the complete Expedience portfolio, assets, and the active customer and supplier contracts.

The Expedience business is not part of Nokia Siemens Networks' mobile broadband portfolio based on widely adopted industry standards. CN TETRAGEN has set up a company called Nexpedience Networks to operate the Expedience assets.

All these announcements helped in bringing significant cash into the system. Apart from all the above divestment, the company is also planning to exit BSS (business support system) portfolio. This will help in bringing more cash to the company. NSN is still looking out for companies which can buy its BSS portfolio.

Business Restructuring

The restructuring process for NSN started on September 29, 2011 when Nokia and Siemens announced the appointment of Jesper Ovesen as executive chairman of the Board of Nokia Siemens Networks. He was brought in to do the restructuring as he had done this exercise in the past. In this case, special emphasis was on overseeing the strategic direction of Nokia Siemens Networks and strengthening its position as a leader in the industry and become a more independent entity.

To make NSN an independent entity, the company took a big decision to reduce global workforce by 17,000. Also simultaneously, the company removed 2 positions at the Executive Board. All this has helped the company to make it a flat organization so that empowerment is at the ground level and decisions can be taken fast.

The company has done well on FDD-LTE and not on TDD-LTE as the overall ecosystem has still not matured and it is still behind by a year. The company has also done record sized deals in US, T-Mobile in Japan, Softbank in Korea and India but the company has to be more aggressive in India and the US market for LTE deals.

According to Rajeev Suri “For TDD-LTE, the company is banking a lot on Japan, India, China, US, Latin America, Saudi Arabia, and Brazil market.”

As on date, the company has signed 65 LTE commercial contracts in the world added Suri.

The company is focusing more on Japan, Korea and US markets as the operators in these countries are monetizing mobile data in a big way. “The total subscriber for LTE stands at 28 mn and NSN has 45% market share,” says Rajeev Suri.

On the financial front, NSN has increased its net cash from Euro -1.2 bn in Q2, 2011 to Euro 3.3 bn in Q2, 2012 and things are planned to improve further in Q3, 2012.

In the last three quarters, the net cash flow has improved and the operating cash flow is much better than free cash flow. Even Q3 profitability is projected to be higher than Q2, 2012.

“In 2012, the company's cash flow situation will be higher than 2011,” says Rajeev Suri.

The company needs to focus on increasing net sales from Euro 3.3 bn in Q2, 2012. which will also help the company to increase its net cash. NSN needs to break the net sales barrier as average net sales for last six quarters comes around Euro 3.4 bn. So, the focus should be more on bagging decent profitability deals rather than gaining market share. Not an easy task but can only happen through innovation and optimizing manpower resources for making NSN mobile broadband ready.