There's little doubt that Rajeev Suri knew he was facing an uphill battle when he took over from Simon Beresford-Wylie as CEO of Nokia Networks on October 1, 2009. (See Nokia Siemens Replaces Its CEO.)



The joint venture had struggled in an increasingly competitive network infrastructure market since it was born on April 1, 2007, and had already undertaken a series of cutbacks during its first two years. (See Nokia Siemens Opens on a Downer, NSN Products Face Further Cuts, Nokia Siemens CEO Slams 'Silly Pricing' and Nokia Siemens Braced for Tough 2009.)

Only two weeks into his tenure, NSN reported declining revenues and growing operating losses, and before 2009 was out, Suri felt he needed to tell Nokia's investors that "Reports of our death are not only greatly exaggerated, but they are totally false." (See No Sign of Recovery for Nokia Siemens and NSN CEO: Don't Write Our Obituary.)

During 2010 and much of 2011 Suri searched for a way to pull NSN out of its rut with a combination of acquisitions, internal revamps and a search for new investors. (See NSN & Moto: It's All in the Execution , NSN Revamps SPIT Unit, Nokia Siemens Seeks Cash and NSN CEO Talks Up US Push in 2011.)

Then, in September 2011, NSN appointed an executive chairman with telecom finance experience and bagged a cash injection of €1 billion (US1.33 billion) from its parents in what looked like a make or break investment from Nokia Corp. (NYSE: NOK) and Siemens AG (NYSE: SI; Frankfurt: SIE). (See NSN Gets $1.36B & New Leader.)

That was followed in November by the unveiling of a restructuring plan that will see a major headcount reduction, a slimmer product and services portfolio, and a much tighter strategic direction for the vendor built around mobile broadband, professional services and customer experience management (CEM). (See NSN to Cut 17,000 Staff, NSN Unveils Its Kill List , Analysts: NSN Focus Makes Sense and 2011 Top Ten: NSN's Amazing Year.)

The vendor followed that with a number of announced divestments and news that it had secured a €1.3 billion ($1.73 billion) loan facility from 15 international banks. (See Adtran to Buy NSN's Broadband Unit, NSN to Sell WiMax Biz and DragonWave to Acquire NSN Microwave Unit.)

And, of course, it's still looking to offload more assets deemed non-core. (See M&A Interest in NSN's BSS Assets Builds.)

That's a great deal of upheaval, and so it's not surprising that, earlier this year, the security of Suri's own position was called into question, though the rumors were quickly and firmly quashed. (See Unsettling Times at NSN and Euronews: NSN Denies 'New CEO' Report.)

So how does Suri view NSN's situation? Light Reading talked to him and the vendor's head of marketing and corporate affairs Barry French about the restructuring, R&D investment, the market, the future and customer experience.

This is the first part of the interview, which focuses in the next few pages on NSN's restructuring process and the vendor's R&D investment strategy. The second part can be found at NSN's Rajeev Suri: Carrier Capex & Customer Experience.

— Ray Le Maistre, International Managing Editor, Light Reading

Next Page: NSN's Restructuring

Light Reading: Can you give us an update on the restructuring process and how that is impacting the company?

Rajeev Suri: So, our restructuring program is more than just workforce rebalancing or workforce reduction. We have about 30 projects to improve the processes in the company –- that would be salesforce effectiveness, pricing effectives, better network and capital management, de-layering, and that's set up and moving along very well.

Then there's the workforce rebalancing. We announced on 23rd of November that 1,000 people are off the payroll. We have started processes in 55 countries, 30 in Europe, that are touching about half of targeted workforce. That's faster than expected. And we have announced measure in Germany and Finland, including site closures. (See Euronews: NSN Job Cuts Halved in Finland and Euronews: NSN to Keep 2,000 Jobs in Munich.)

Secondly, we have strategic part of the restructuring -- core versus non-core. We announced three divestitures that we are hoping to close soon.

Separately, we said in managed services we would be more selective and would take full scale outsourcing deals we can transform through our global delivery and automation [capabilities] but not so much the ones that are low end or just field maintenance.

An example of that is that we have returned one outsourcing contract in Latin America to the customer and that takes out about 3,500 people approximately from the [NSN] payroll.

[That contract return was to Brazilian operator Tele Norte Leste Partricipacoes SA, better known as Oi. That five-year deal was announced in July 2009 and was worth an estimated €1.1 billion ($1.46 billion) -- see Services Now 45% of NSN Revenues.]

We have also made an exit from a contract that we have handed to Motorola Solutions -- that's the Nødnett project in Norway and that's non-core. That's Tetra, and we're not in [that market]. (See NSN Transfers Nødnett Project to Motorola Solutions.)

How is this all impacting the company? Well, in a positive way ... we have said we will increase our investments in mobile broadband and reduce investments in non-core areas. That's already happened in the fourth quarter, and I think that's positive.

We are able to get the innovation engine back … you will have seen some announcements around Flexi Zone -- that's a picocell, a small cell, it's technology that came from the Motorola side [Motorola Networks, acquired in April 2011] and that's a sign of innovation clearly coming back to NSN. And we are improving quality a lot as well, again through a lot of the Motorola processes. (See NSN Pours Small Cells in Liquid Radio.)

And every improvement in quality … imagine you have 100 percent of people working in R&D, and you improve quality and suddenly 20 percent less people work on debugging software, then for me that's 20 percent more capacity in R&D. We are focused on things like that, to get more efficient by focusing on improvements in quality.

We have a program in quality that is called Path to Virtual Zero. Effectively when you launch a product, any kind of software, upgrade, hardware, it is almost zero defect. The CDMA line of business we inherited from Motorola is already there. Our LTE program with NTT DoCoMo Inc. (NYSE: DCM) is already there. We want to get all our business lines to that level by the end of 2013. It will be fascinating if we can get there because clearly we will then differentiate in quality in the industry.

Barry French: What's interesting, when you do restructuring, there's internal focus. The people you see out here [at NSN's Mobile World Congress stand], many sit in the Munich site, and they are still motivated. That's hard to explain.

Rajeev Suri: We do monthly Pulse surveys [of staff] asking about commitment to change, support for strategy, does the strategy make sense … the results were overwhelmingly in favor, they were shockingly good.

Barry French: At time like this people get negative, but these scores were in the high 80s for positive reactions, some metrics even have higher, and that's pretty impressive. After we announced on November 23, the executive board did town hall meetings … and you could feel the same response. People knew it was going to be hard, but … And customers had the same reaction -- the strategy makes absolute sense. And given how the industry is changing, it makes sense -- and others are going to have to do similar things.

Next Page: R&D Strategy

Light Reading: In terms of R&D, is there a percentage of NSN's revenues you're putting into R&D? And of the money raised from NSN's parents and the banks, is any of that being used for R&D or is that for restructuring?

Rajeev Suri: In R&D we have always been well funded … what we will reduce by way of investments in non-core businesses … we will funnel that back into mobile broadband and quality, innovation quality. Take WiMax. We exited WiMax and then, when we brought Motorola [Networks] on board, we moved a few hundred people from WiMax to LTE development, and that was great for us. (See NSN Slims Down GSM, WiMax Teams.)

So this is what we are doing -- moving resources, moving people, improving capacity, improving efficiency … But we will absolutely improve investments in mobile broadband, particularly in LTE because we want to be ahead of the curve, we want to be first on a number of fronts.

With the funding, so we had €1 billion in equity from our parents and €1.4 billion in funding [from the banks]. Some of that is going to cover restructuring. It's expensive to restructure in some of these countries. So that's more for restructuring and not R&D. We are well funded in R&D and have been investing well, but we will invest more to get ahead of the curve and not just play catch up.

Light Reading: So is there a percentage of revenues that goes into R&D and will that increase?

Rajeev Suri: We are at about 14 percent of revenues invested into R&D and the industry average is about 15 percent, but we have been more efficient because we have a mixture of high-cost and low-cost R&D set-ups and have been driving more toward low-cost in the past three to four years.

So I think it's fair to say that on R&D we are more efficient than our European peers because 60 percent of our R&D is in low-cost countries … China, India, Poland, and even the Philippines, which is ultra-low cost -- it's about half the cost of India.

So that makes it a bit difficult to look at R&D [in terms of investment] … We have started to look at R&D in terms of man hours and capacity instead of a percentage of revenues for two reasons: About 50 percent of our business is services, which requires no R&D; and second, because of the shift from high-cost to low-cost, so we [might be spending less] but have more capacity than our peers. Just in the radio access part of the business [NSN] have about 3,000 more people in R&D than Nokia and Siemens had before the merger and the operating cost of R&D is 25 percent lower than before the merger.

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