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NSN's Big Squeeze

Nokia Networks may have delivered a knock-out second quarter, but the vendor is still under pressure to make itself leaner and more profitable. (See Nokia Siemens Posts Blow-Out Q2.)

Commenting on the company's 18 percent year-on-year growth in revenues, and its almost doubling of its gross margins during today's earnings conference call, Olli-Pekka Kallasvuo, CEO of parent company Nokia Corp. (NYSE: NOK), said: "NSN has shown encouraging progress in a challenging market. The growth and improvement in margins is impressive, and the [post-merger] synergies are flowing into the [profit line]. There has been good progress in reducing operating expenses but there is still much to be done."

That further work is needed on costs was a point backed up by Nokia CFO Rick Simonson, who noted: "Although we have positive operating cashflow at Nokia Siemens Networks, we are still not satisfied, and Simon and his team are not satisfied. We are still working to improve returns."

And with Nokia still forecasting the telco equipment and related services market to be flat (in Euros) this year, and for NSN's market share to remain constant, both executives noted the ongoing tough trading conditions in the network infrastructure market.

"It will come as no surprise that the market remains difficult," stated Kallasvuo. "Competition is tough. But the Nokia Siemens leadership has the right focus – prudent portfolio management, rigorous cost control, and a focus on profitability and cash, rather than market share at any cost... The team has been leveraging its biggest asset – its large installed [customer] base. NSN can invest to meet the needs of its customers." (See Nokia Siemens Gets Ruthless on R&D Focus.)

Simonson added: "The market is still an aggressive pricing environment, and the balance of sales is shifting towards the lower-margin emerging markets, so costs need to be continually worked on."

Nokia Siemens said it couldn't provide a breakdown of how its six business units performed in the second quarter. Simonson did note that the equipment vendor "showed across-the-board strength in radio access, [IP] transport, [Converged] core, and services," but didn't name-check the Broadband Access, which has abandoned development in current GPON technology, and Operations and Business Software (OBS) units. (See 'Run Away!' Nokia Siemens Retreats From GPON.)

The CFO also reminded those on the conference call that the second and fourth quarters of each year are historically strong for network equipment sales, suggesting that while financial analysts may have not expected much in the way of year-on-year growth, the sales hike should not be that much of a surprise. The comment also suggested that the third quarter would likely not deliver the same sort of growth numbers.

— Ray Le Maistre, International News Editor, Light Reading

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