New joint venture kicks off Day 1 with reduced growth expectations for 2007, handing a big advantage to rival Ericsson, say analysts

Michelle Donegan

April 2, 2007

2 Min Read
Nokia Siemens Opens on a Downer

What a start! On its second day of operation, the telecom sector's third largest supplier, Nokia Networks , lowered its market growth expectations for 2007, showing the first clear-cut signs of merger strain. (See Nokia Siemens is Alive.}

Nokia Siemens Networks says it expects "very slight" growth in fixed and mobile infrastructure in 2007, which is about 2 percent to 3 percent, down from original "slight" expectations of 5 percent. The company cites "narrowing of visibility and indications of a slowdown in spending in some regions" as the reasons for revising the outlook.

Analysts at Dresdner Kleinwort believe this is a sign that some customers are getting nervous about dealing with the newly merged entity and that the company still has to address some product overlaps.

"More plausibly, Nokia-Siemens, like Alcatel-Lucent, has started to experience customer hesitancy," says the Dresdner analyst team in a research note issued Monday.

Nokia Siemens Networks revealed its new product portfolio in February. But there is still some overlap between the Nokia and the Siemens-NEC WCDMA platforms, according to Dresdner. (See Nokia, Siemens Make Plans, Nokia Siemens Reveals Product Picks, and Nokia Siemens Debuts at CTIA.)

In addition to product streamlining, the new company says it will cut between 6,000 and 9,000 staff in the next four years. It will also have to deal with the corruption investigations that it inherited from Siemens. (See Nokia Slashes, Siemens Still Scandalized and Corruption Probe Targets Siemens Staff .)

The new company is the world's third largest equipment supplier based on 2006 pro-forma revenues of €17.1 billion (US$22.9 billion).

With the new joint venture and Alcatel-Lucent (NYSE: ALU) both now encumbered by post-merger issues, such as staff reductions and product portfolio consolidation, Ericsson AB (Nasdaq: ERIC) looks well positioned to benefit from their distractions, according to Dresdner Kleinwort.

"The merger strains affecting Nokia-Siemens-NEC and Alcatel-Lucent-Nortel open up unprecedented opportunities for Ericsson to win terrain with several customer accounts," says the Dresdner team. Ericsson "is the beneficiary of its competitors' combination processes," the analysts add.

Like Nokia Siemens, Alcatel-Lucent has been forced to address difficult portfolio decisions and engage in headcount reduction negotiations. But the company scored a vote of confidence last week with a $6 billion, three-year network expansion contract from Verizon Wireless . (See AlcaLu Makes Product Cuts , Alcatel-Lucent Job Cull Hits 12,500, Alcatel-Lucent Considers Staff, AlcaLu Rules Out French Redundancies, and AlcaLu Wins $6B Verizon Deal.)

Looking at the headcounts of these three big vendors, Ericsson looks set to grow, while Alcatel-Lucent and Nokia Siemens Networks shrink. Dresdner forecasts that in 2011 Ericsson will have 76,000 employees, up from today's 64,000. The new hires will likely be in research and development and sales and marketing. Alcatel-Lucent will have 68,000 to 69,000, down from 81,000 today, while Nokia Siemens Networks will have 50,000, down from 60,000 today.

— Michelle Donegan, European Editor, Light Reading

About the Author(s)

Michelle Donegan

Michelle Donegan is an independent technology writer who has covered the communications industry for the last 20 years on both sides of the Pond. Her career began in Chicago in 1993 when Telephony magazine launched an international title, aptly named Global Telephony. Since then, she has upped sticks (as they say) to the UK and has written for various publications including Communications Week International, Total Telecom and, most recently, Light Reading.  

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