Zacks_Analysts' Blog : NSN Abandons Stake Divestment Plan - Analyst Blog

Nokia Siemens Networks (NSN), a 50-50 joint venture between Nokia Corp. (NOK) and Siemens AG (SI) to provide telecom infrastructure solutions, has suffered a setback. For the last 12 months, NSN was looking for a third party investor in order to inject funds, thereby reducing the stake of both Nokia and Siemens. Recently, the company stated that it has abandoned its equity disinvestment plan for the time being.

In June 2011, The Financial Times reported that the two major U.S. private equity groups, Kohlberg Kravis Roberts and TPG, have backed out from their bidding for a significant stake in NSN. The departure of these two private equity groups primarily resulted from disagreement between the firms and NSN over price and controlling stake of the venture. Nokia and Siemens are at present trying to infuse more cash in their joint venture in order to revamp its businesses. The venture may look for further headcount reduction in order to streamline costs.

Despite being the second largest company in this field after LM Ericsson AB (ERIC), NSN always remain in sticky wicket once it was formed in 2007. Huawei and ZTE, the two Chinese telecom infrastructure manufacturers, are fighting neck and neck with NSN to capture global market share. In the previous quarter, adjusted operating margin of NSN was 0.1% compared with 0.6% in the prior-year quarter.

Industry sources rumored that Siemens does not consider NSN as a part of its core business and the company is looking to exit from the venture as soon as possible. On the other side, although telecom network infrastructure solution is an integral part of Nokia’s core mobile handset business, the company is at present giving its full emphasis in its upcoming Microsoft Corp. (MSFT) developed Windows Phone 7-based smartphones.

Nevertheless, during the last six months, the NSM improved its financial conditions from a year-ago primarily attributable to a surge in 3G network deployment in the emerging countries. In April 2011, NSN completed the long-waited acquisition of network gear businesses of Motorola Solutions Inc. (MSI) for $975 million. This acquisition may help NSN to get a foothold in the lucrative CDMA markets of North America, which remains the major drawback of the venture.