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Mergers & acquisitions

Nokia & Siemens: More Cuts Needed?

The management of Nokia Siemens Networks, the carrier infrastructure joint venture created today through the combination of Nokia Corp. (NYSE: NOK) and Siemens Communications Group telecom equipment units, is already coming under pressure to implement greater cost savings than the €1.5 billion (US$1.9 billion) initially outlined. (See Nokia, Siemens Create Networks Giant.)

During a press conference this morning, Simon Beresford-Wylie, the current head of Nokia's networks unit who will be CEO of the new company, said he was already being pressed by investors to identify greater efficiencies.

"The management team will have to start turning stones to find the extra savings that investors are already saying we should be able to find," he said.

Those extra savings should come from more extensive job cuts, according to one analyst. Nokia Siemens Networks will start with 60,000 staff -- about 20,000 from Nokia and 40,000 from Siemens -- but reckons it can reduce that number by between 6,000 and 9,000, cuts that would account for about half of those savings.

But Nomura Securities analyst Richard Windsor thinks that's nowhere near enough. In a research note issued this morning, Windsor says that with annual revenues of €15.8 billion ($19.9 billion), "60,000 employees looks much too high. We believe that the 6,000 to 9,000 headcount reductions do not go nearly far enough, and that around 20,000 cuts are needed to bring the joint venture into line with the rest of the industry."

But Light Reading Insider analyst James Crawshaw says that "to try to get 10 percent cost synergies is very ambitious," given that the cost of making redundancies in Germany, where 11,000 of the new company's staff will be based, is higher than many other markets.

Crawshaw notes that Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU) are aiming for cost synergies of less than 7 percent of sales -- $1.7 billion savings from a merged company with annual sales of $25 billion. (See Alcatel, Lucent Seal Deal.)

— Ray Le Maistre, International News Editor, Light Reading

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