That was the message coming out of Paris earlier this week when Alcatel-Lucent (NYSE: ALU) reported its second-quarter earnings -- and the same complaint was heard in Helsinki this morning as, for the first time, Nokia Corp. (NYSE: NOK) reported a quarter's business for its new network infrastructure joint venture Nokia Networks .
The news wasn't good, with harsh market conditions to blame, according to Nokia's senior management. So more costs need to be cut and market stategies revisited. (See Nokia Siemens Suffers Merger Blues.)
"It is an extremely competitive market, especially in wireless infrastructure," said Nokia CFO Rick Simonson during today's earnings conference call. "We have seen very aggressive and unsustainable pricing, and we haven't participated in some of the deals due to the financials," he added, before rounding on Nokia Siemens Networks' rivals. "Competitors have targeted our business during our integration period."
It's like he took the words right out of Pat Russo's mouth! (See AlcaLu's Russo: We're Under Attack!)
But it wasn't just tough competition that resulted in what Nokia CEO Olli-Pekka Kallasvuo described as "a disappointing first quarter that fell short [in terms of] margins and revenues" for Nokia Siemens. There was also the "inevitable internal disruption" of bringing two cultures together, and slow orders from customers that have been waiting for the dust to settle, though that situation is already getting better, according to Kallasvuo, who is also the chairman of Nokia Siemens Networks (NSN).
The gross margins were certainly disappointing, hitting just 23.6 percent in a market where other major vendors are achieving or edging towards the 40 percent mark.
So after just one quarter, "strong actions are being taken," said Kallasvuo. The Nokia Siemens management team, headed by the joint venture's CEO Simon Beresford-Wylie, have to find another €500 million (US$683 million) in annual cost savings on top of the €1.5 billion ($2 billion) that's already being cut.
Does that mean another 3,000 jobs will be cut from the joint venture's staff? The company isn't saying exactly how that money will be saved, or the timescale. "We'll keep you posted on this," stated CFO Simonson -- but he did say that the vendor would look at "additional opportunities to transfer staff [in Germany and Finland] to our partners," an arrangement it has already achieved. (See NSN's Staff Shuffle.)
In addition, Kallasvuo said Nokia Siemens "must transform its business," and "focus on more services, software-focused product developments… and rebalancing on emerging markets [such as] India and China." (See Nokia Siemens Reveals Product Picks.)
There's a foundation to build on in this respect, noted Kallasvuo, as NSN has landed some major mobile deals in India during the past few months, and has been investing in its operations there. (See Nokia Siemens Lands $900M India Deal, Nokia Siemens Gets IDEA, and NSN Invests in India.)
Today's announcements also revealed just how weak NSN is in the North American market. Of its €3.44 billion ($4.7 billion) in revenues in the three months to June 30, only €164 million ($225 million), or 4.8 percent of the total, was generated in North America, its smallest geographic region. (See the following table.)
Table 1: Nokia Siemens Networks Revenues by Region, Q2 2007
|Region||Q2* revenues||Q2 revenues in US$**||% of Q2 revenues|
|Europe||�1,186 million||$1,624 million||34.5%|
|Asia/Pacific||�1,183 million||$1,620 million||34.4%|
|Middle East and Africa||�369 million||$505 million||10.7%|
|China||�294 million||$403 million||8.6%|
|Latin America||�242 million||$331 million||7.0%|
|North America||�164 million||$225 million||4.8%|
|Total revenues||�3,438 million||$4,708 million||100%|
|* Three months to June 30, 2007 |
** current exchange rate �1 = $1.37
NSN's management has expressed its desire to be a stronger player in that market: To that end, the joint venture has been linked recently to talks with Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), which generates most of its $500 million-plus per quarter revenues from North American carriers. (See Is Nokia Siemens Tailing Tellabs?, Tellabs Mum on M&A Talks, and Tellabs: Suitor or Bait?) — Ray Le Maistre, International News Editor, Light Reading