Sources: Lucent, Nokia in Play for Siemens
Siemens has held discussions with a number of parties about potential extensive joint ventures, mergers or even an acquisition, say industry executives who requested anonymity. It is believed that other major vendors, including Nortel Networks Ltd. , and unidentified private equity groups have also made contact about a possible deal.
Talk of such negotiations comes as Ericsson AB (Nasdaq: ERIC) and Lucent prepare for a bidding war to land Ethernet equipment firm Riverstone Networks Inc. (OTC: RSTN.PK) , and as the industry mulls multiple M&A possibilities. (See Ericsson Wants Riverstone and Analysts Dismiss Ericsson/Juniper Talk.)
It also follows last month's suggestion in Germany's Manager Magazine, which cited unnamed executives from the vendor, that Siemens has considered breaking up the unit and either selling off the parts – carrier networks (fixed and mobile), enterprise networks, and devices (wireless modules, for machine-to-machine communications, and the home and office communications devices unit) – or finding partners to help them recover. (See KPN, Siemens Under Scrutiny.)
Nomura Securities analyst Richard Windsor believes Siemens AG's board has been looking to sell the Com assets for some time, and notes that Siemens' recent analyst day included presentations from other Siemens divisions, but not SBS (Siemens Business Services) or Communications.
And while he believes there would be a number of interested parties, Windsor reckons Ericsson AB (Nasdaq: ERIC) would likely be at the front of the queue. "Given Ericsson's recent track record in M&A – it has been very active in the past few months – I'd be surprised if it wasn't considering some of the Siemens Com assets." (See Ericsson Buys Bulk of Marconi, Ericsson Swoops on Axxessit, Ericsson Wants Riverstone.)
But it's likely Ericsson would want to cherry pick specific assets, rather than take the whole company, something Siemens would prefer not to do. Windsor believes an agreement involving the whole of Com is the result the Siemens board is seeking.
While none of Light Reading's sources have mentioned Ericsson as a known suitor, they say discussions with Lucent are at a preliminary stage, and that Nokia has made an initial proposal.
Siemens declines to comment on what Andreas Mueller-Schubert, president of fixed network solutions at Siemens Communications, calls "rumor and speculation." He says "there's always speculation about all sorts of companies."
Nokia had not responded to requests for comment as this article was published, while Lucent and Nortel declined to comment on market speculation
From Siemens' side, one of the main drivers for the talks is the increasingly competitive conditions in the telecom sector that have left the German company's communications business struggling to meet its financial targets. (See Siemens Spawns a Problem Child.)
During the company's fiscal 2005 results presentation last November, Siemens CEO Klaus Kleinfeld noted that the company's board was "unsatisfied" with the Com group's performance, stating that "our results were heavily burdened by SBS and Com." Those two divisions are the only two of the company's then 12 units (now 11) that were off course to meet the parent company's margin target of between 8 and 11 percent by the end of fiscal 2007.
The increasingly competitive conditions are being intensified by ongoing carrier consolidation – resulting in a smaller number of large customers that have even greater bargaining power – and the growing strength of the Chinese vendors, Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), which compete aggressively on price as well as having a broad range of impressive products.
Siemens has already exited the highly competitive mobile handset business, selling its operations to BenQ Corp. , which still uses the Siemens name as part of its handset brand. (See BenQ Buys Siemens Phone Unit.)
Now Siemens is seeking ways to reduce the drag on its overall financial performance by finding a new home for its communications group, and, as with many of the traditional vendors, is looking for the best fit from a political, financial, cultural, and technical standpoint.
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