Nokia Slashes, Siemens Still Scandalized

Nokia Corp. (NYSE: NOK) and Siemens AG (NYSE: SI; Frankfurt: SIE) are working hard to get their houses in order before they form their carrier systems joint venture, with Nokia announcing job losses and Siemens continuing to help prosecutors with their fraud enquiries. (See Nokia Announces Job Cuts and Siemens Cooperates.)

The two companies were promoting their about-to-be-formed joint venture (JV), Nokia Siemens Networks, at the 3GSM show in Barcelona this week, and unveiled the JV's product lineup and a colorful, and some say expensive, new logo. (See Nokia Siemens Reveals Product Picks and What Price a New Logo?)

Once the new company is formed, it will have about 60,000 staff, of which between 6,000 and 9,000 will then be cut during the following four years, say the vendors, though investors and analysts believe there will be room for greater efficiencies.

While staff from the networks side of each company prepare to find out who's staying or going, Nokia says it's cutting up to 700 jobs in parts of its business that won't be incorporated into the new venture. The cuts include: about 360 positions in Enterprise Solutions; about 140 jobs in the software part of its Technology Platforms unit, which is focused on device developments; and about 130 in the vendor's IT organization.

Siemens, meanwhile, continues to be plagued by the corruption scandal involving its fixed-line networks division. This week public prosecutors raided Siemens offices in Munich, Erlangen, and Nuremburg, seeking evidence of theft, deceit, and tax evasion. Siemens says it has been conducting its own internal probe into these matters and has now passed on its findings to the Nuremberg Department of Public Prosecution.

The probe, which is focused on fraudulent payments made to bogus companies and/or corrupt business associates, began with figures of €20 million (US$26.2 million) being cited. Now, however, the company itself is examining consultancy payments of more than €420 million ($551 million) that stretch back more than five years, of which more than €200 million ($262 million) is being investigated by public prosecutors, who have interviewed more than 30 people as they investigate alleged industrial bribes. Some Siemens staff believe the final sum involved may even reach €1 billion ($1.3 billion). (See Corruption Probe Targets Siemens Staff and Nokia Siemens JV in Jeopardy.)

Since the investigation began into financial transactions involving the fixed-networks division, a number of other Siemens business units, including power generation and medical solutions, have become embroiled in separate probes, and been subjected to fines, regarding price fixing. On Wednesday this week, Siemens said it had "suspended three employees who allegedly participated in collusion regarding power transformers produced by Siemens’ Power Transmission and Distribution Group."

As soon as the telecom-related investigation became public, Siemens said it would cooperate fully with all investigations, and that it has "zero tolerance for irregular or illegal conduct." In January the company appointed a former public prosecutor as its Chief Compliance Officer and in December employed an international law firm to help with its investigations. (See Siemens Appoints CCO and Siemens Extends Probe.)

The company also recently noted that the Antitrust Division of the U.S. Department of Justice is conducting a separate investigation into Siemens activities, and that the Securities and Exchange Commission (SEC) enforcement division is conducting an "informal enquiry."

Despite the ongoing concerns about potential legal action and tarnished brands, Nokia Siemens Networks is set to become a going concern during the coming weeks. The company's display attracted a lot of attention at 3GSM, and the senior executives at the show were confident of retaining its position as the No. 2 player in the telecom equipment market (in terms of revenues from carriers), having forecast pro forma revenues of $22 billion for 2006.

Nokia Siemens Networks' CEO-designate, Simon Beresford-Wylie, calculates that only mobile infrastructure archrival Ericsson AB (Nasdaq: ERIC) generates more revenues from carrier customers, with Alcatel-Lucent (NYSE: ALU), Nortel Networks Ltd. , Cisco Systems Inc. (Nasdaq: CSCO), and Huawei Technologies Co. Ltd. ranking third to sixth.

Prudential Equity Group LLC analyst Inder Singh believes that, having identified its product portfolio and roadmap, the joint venture is "well positioned in the market… We expect the JV's business momentum to build later this year."

— Ray Le Maistre, International News Editor, Light Reading