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July 19, 2010

NSN (Nokia Siemens Networks), the world’s second-largest manufacturer of wireless phones and MIDs (mobile Internet devices) says it will pay $1.2 billion in cash for wireless network assets from Motorola to expand its own line of mobile products in North America and Japan.

Based in Finland, Nokia Siemens Networks wants to boost its presence in North America in order to better compete with larger rival Ericsson and faster-growing competitors such as China’s Huawei Technologies.

In the past year, Nokia unsuccessfully bid twice for assets belonging to Nortel Networks, after the telecommunications equipment maker filed for Chapter 11 and sold off many business units.

Pierre Ferragu, a London-based analyst with Sanford Bernstein said “There's no doubt that this is a positive development for Nokia Siemens. It’s good for them to get a foothold in both North America and Japan, especially as this is going to be the two strongest telecoms market over the medium term."

Nokia Siemens has been cutting the number of jobs at some of its facilities and closing offices to adjust to falling demand and global price competition from Ericsson and Huawei.

NSN CEO Rajeev Suri said in November the company planned to expand through acquisitions and partnerships while trimming its existing operations on a global basis.

Motorola’s sale of its wireless-network unit prepares the Illinois company for a broader restructuring. Motorola is planning to spin off its mobile-phone and set-top box operations into a company that will be led by co-Chief Executive Officer Sanjay Jha. The spinoff is on schedule for the first quarter, Jha said last month.

“Motorola is selling these assets for a very good price and it’s a good step towards the break-up plan which will help them to be well capitalized next year,” Ferragu said.

Globally, overall sales from the wireless networks business fell about seven percent to $896 million last quarter from a year earlier, accounting for 18 percent of Motorola’s total revenue. The division’s operating profit climbed to $112 million from $62 million a year earlier, helped by contracts it won from companies such as China Mobile.

Since 1999-2000, telecommunications-equipment companies have combined to cope with declines in spending by some wireless customers. France’s Alcatel acquired Lucent Technologies in 2006 to create Alcatel-Lucent, a Paris-based rival to Nokia Siemens.

The joint venture of Nokia and Siemens will gain more than 50 customer relationships, it said in a statement today.

Nokia Siemens said it would gain about 7,500 employees in the deal, which is predicted to close by year end. The transaction will enhance profitability and cash flow, it said.

“More scale for NSN makes sense,” said Jason Willey, an equity analyst at Standard & Poor. “They have a segment in their business model where they really need stronger ties to customers in the U.S. and anything they could do to improve their scale and presence there would be a definite positive.”

Nokia Siemens said its acquisition will strengthen its ties to operators Verizon Wireless and Sprint Nextel in the U.S., KDDI Corp. in Japan, China Mobile Ltd. and Vodafone Group in Europe.

The wireless business unit at Nokia Siemens is rooted in the GSM standards used by most wireless carriers outside the U.S. and in East Asia.

Motorola sells GSM systems as well as gear-based on CDMA, which is used by some North American and East Asian wireless carriers and so-called fourth-generation technologies LTE and WiMAX.

Based in Schaumburg, Illinois, Motorola said it is still hanging on to a technology it developed a few years ago called iDEN.

Nokia Siemens is the world’s second-largest maker of wireless phone systems behind Ericsson and roughly even with Huawei, according to Redwood City, California-based researcher Dell’Oro Group.

Motorola is the 4th-largest company in CDMA wireless systems, according to the researcher.

The profit margins that Ericsson has been able to squeeze out of Nortel’s wireless business and the demand in that business has so far been stronger than we expected.

This indicates that some of those older technologies are going away slower than people expected. There’s still more investment to be made in things like CDMA and iDEN.

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Source: Nokia Siemens.