Faced with mounting competitive and financial pressures, Nokia Siemens Networks (NYSE:NOK, NYSE:SI) is launching a major overhaul, reorganizing its business into three divisions, focusing more attention on partnerships and acquisition, and contemplating cutting its work force by as much as 9%.
NSN isn’t the only telecom equipment vendor to fair poorly during these lean economic times. Both Alcatel-Lucent (NYSE:ALU) and Ericsson (NASDAQ:ERIC) reported disappointing third-quarter results, as sales in developed and developing markets slow. But NSN isn’t just facing a down market; it’s being battered by the competition. As Nokia CEO Olli-Pekka Kallasvuo acknowledged on Nokia’s Q3 earnings call last month, “It is clear that NSN has lost market share.”
NSN reorganization, which would go into effect at the beginning of the new year, would divide the vendor into three operational units: business solutions, network systems and global services. NSN said it would continue to look at more product and technology partnerships, such as its joint venture with Juniper Networks (NYSE:JNPR) for carrier Ethernet. It will also look for strategic acquisition opportunities that could augment its product portfolio or increase its customer base. NSN made just such a strategic bid last summer when it offered to buy Nortel’s CDMA and LTE businesses, only to have its offer trumped by Ericsson.
On the financial side, NSN plans to reduce its expenses and overhead by 500 million euros (U.S. $733 million) by the end of 2011. As part of that effort, NSN will conduct a head count review, which could result in 4480 to 5760 layoffs, or 7% to 9% of its work force of 64,000.
Presiding over the reorg will be new CEO Rajeev Suri, the former head of NSN’s services group who took over from Simon Beresford-Wylie in October. In an interview with TelephonyOnline last month, Suri stressed the importance of services, software and overall solutions in the telecom infrastructure order.
“You need to have a good and strong product business,” Suri said in the interview. “You need to have a strong services business, and they need to coexist in a symbiotic relationship. I think what we need to bring to customers, to communications service providers, is really the best products and services package. That’s what they’re expecting. On the services business itself, clearly managed services is a growth driver. Consulting and systems integration is a growth driver. We’ve done two things: Services has grown as a percentage of company revenue, but even within services we have grown or changed the business from a product-attached service set to an independent professional services group. Professional services is now 60% of the services business. When we started it was around 40% of the business. It’s got to be a symbiotic relationship. We can’t be a services company only. We will not be a product company only.”