Light Reading

Has NSN Turned a Corner?

Ray Le Maistre
1/24/2013
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Could this be the start of a turnaround at Nokia Siemens Networks? The network systems vendor reported improved sequential and year-on-year sales and margins during the final quarter of 2012, generating revenues of €3.99 billion (US$5.36 billion) -- up 5 percent compared with a year ago and up 14 percent compared with the third quarter -- and posting a gross margin of 36 percent (better than the 29.2 percent of a year ago and the 32.2 percent achieved in the previous quarter). The numbers were reported as part of parent company Nokia Corp.'s earnings report. (See Nokia Makes €2.03B Full-Year Operating Loss.) The numbers aren't unexpected: Nokia pre-announced the improving situation on Jan. 10. (See Nokia: Q4 Not as Bad as Expected.) The improved sales are the result of strong traction with mobile operators (for network systems as well as professional services) and the margins have been helped by the lower cost base that is the result of the company's ongoing restructuring program -- NSN ended 2012 with 58,400 staff, a reduction of 15,300 compared with the end of 2011 -- though the vendor says its mix of sales was more weighted generally towards higher-margin infrastructure and services products. The vendor had a particularly encouraging quarter in North America, where revenues of €426 million ($570 million) were up by 45 percent compared with a year earlier and up 49 percent sequentially. NSN's strongest region for sales is Asia/Pacific (not including China), where it generated revenues of nearly €1.18 billion ($1.59 billion), up 29 percent compared with a year ago, but down 7 percent compared with the third quarter of 2012. The improvement in sales and gross margins, plus a decreasing cost base, helped the company to report an operating margin (after one-time costs) of 14.4 percent, a dramatic improvement compared with the 4.6 percent achieved a year earlier. The company's cost base looks set to decrease further during 2013 as it has agreed the sale of its optical and BSS business units, which will result in lower general operating expenses as staff transfer to their new employers, though these divestments will also impact revenues to some extent. For the full year 2012, NSN reported revenues of €13.78 billion ($18.43 million), down 2 percent compared with 2011, and an operating margin (after one-time costs) of 5.6 percent compared with 1.6 percent for 2011. With a following wind, NSN is now working towards consistent positive operating margins. Nokia noted in today's earnings release that NSN is "focused on maintaining a strong financial position and liquidity profile. Cash generation is a clear priority at Nokia Siemens Networks, and the company intends to be self-funding in all aspects of its operations." There's clearly improved optimism within the company, as it's expected to seek fresh capital from the bond market, something it could not have reasonably contemplated a year ago. (See Euronews: NSN Looks to Raise €700M.) It's clear, though, that while its performance has improved, the company is still not out of the woods. The company expects that, after one-time costs, its operating margin in the first quarter of 2013 will be somewhere around 3 percent, though it notes that this could vary by four percentage points either way. That's clearly a major dip from the fourth quarter and clearly signals that the company could yet report an operating loss even after restructuring costs. But the first quarter is normally a tough one for all vendors: Quite how well NSN is doing, and whether it has real momentum, can only reasonably be judged after another few quarters of results. For now, though, there are certainly signs that the vendor moving in the right direction. — Ray Le Maistre, International Managing Editor, Light Reading

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fjanisze
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fjanisze,
User Rank: Light Beer
2/5/2013 | 5:44:47 PM
re: Has NSN Turned a Corner?
This is just the beginning, the situation is going to be improved in the next months.. At least, that is what i hope.
Craig Matsumoto
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Craig Matsumoto,
User Rank: Light Sabre
1/24/2013 | 6:27:17 PM
re: Has NSN Turned a Corner?
Nice news for NSN, but I still wonder what Marlin can build out of it.
Ray Le Maistre
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Ray Le Maistre,
User Rank: Light Sabre
1/24/2013 | 5:52:57 PM
re: Has NSN Turned a Corner?
I think we'll get a clearer picture of NSN's ongoing performance after H1 2013 -- if it's still outperforming year-on-year and holding on to gross margins in the 30s then it will have at least bought itself some time and have something to build further upon. It certainly looks like its mobile broadband + professional services + Customer Experience Management (CEM) applications focus was the right one for the company.
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