Post Nokia Siemens, Whither Nortel, Others?
The consensus view is that the creation of Nokia Siemens Networks -- the combination of Nokia's Networks Business Group and the carrier-related operations of Siemens Communications Group -- is positive for both parent companies, and that it makes sense from both technological and cultural perspectives.
In a research note issued this morning, Inder Singh at Prudential Equity Group LLC wrote: "Strategically, we feel that the joint venture is a positive for Nokia as it creates a very strong WCDMA/GSM competitor, owning roughly a third of the market, behind only Ericsson."
So what does that mean for competitors? Bad news, basically. With Nokia and Siemens putting together their business to create a strong No. 2 in market share behind Ericsson AB (Nasdaq: ERIC), that leaves other competitors playing catchup. Nortel, NEC, Motorola, and Juniper all likely have work to do to respond to the move.
Patrick Donegan, senior analyst for wireless at Heavy Reading, reckons today's news leaves Nortel and Motorola, two companies believed to have engaged in talks of their own with Siemens in the past few months, on the consolidation sidelines.
“With the other partners already up on the dance floor, this leaves Motorola and Nortel shuffling their feet, not sure whether to make a move or hope that one of the Asian [players] will show up later,” says Donegan.
The players he refers to are, of course, Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763). Nortel has already done a soft-shoe shuffle with Huawei, but that recently ended in tears when they abandoned plans for a broadband access joint venture after only a few months. (See Nortel, Huawei Kill JV.)
Prudential's Singh has the same concerns for Nortel. "We believe this JV could have negative implications for Nortel as it reduces the company's options to strengthen its competitive standing in WCDMA/GSM. It also limits Nortel's merger options for Nortel, leaving it far smaller than Lucent/Alcatel, Nokia/Siemens, and Ericsson...
"We believe the top three wireless infrastructure vendors will now own 75 percent of the overall wireless market, which could make it harder for the smaller players to remain competitive."
According to market share data for the first quarter of 2006 from Dell'Oro Group , Nortel has a 10 percent share of the global wireless infrastructure market. Nortel's share of the GSM/WCDMA market is about 7 percent, while its CDMA infrastructure market share is about 22 percent.
Nortel's share price was down 6 cents, more than 2 percent, to $2.21 in early trading today.
Singh also believes the creation of Nokia Siemens Networks could be negative for Juniper, which derives more than 10 percent of its revenues from reseller partner Siemens. The prudential analyst reckons "Nokia will be the primary decision maker in the joint venture, and it could be less likely to use Juniper gear due to its relationship with Cisco Systems Inc. (Nasdaq: CSCO), as well as due to Juniper's joint venture with arch rival Ericsson."
In today's press conference, Siemens AG's CEO Klaus Kleinfeld said only that Nokia Siemens Networks management would hold talks with Juniper, and that any decision made would need to make financial and operational sense.
Juniper's stock dipped 56 cents, more than 3 percent, to $16.23 in early morning trading today.
Analysts at Lehman Brothers also point to the new strength at the top created by the merger, giving Nokia Siemens Networks a 32 percent market share of the GSM/WCDMA market in 2005, behind Ericsson's 38 percent. But as well as creating a close contender to Ericsson in the wireless market, the inclusion of Siemens's fixed-line business in the new company gives Nokia a convergence story it doesn't currently have.
"From a Nokia perspective, this deal clearly addresses its weakness in the wireline part of the market and thus gives a better positioning as operators push fixed/mobile convergence," note Tim Luke and Stuart Jeffries at Lehman.
Nomura Securities analyst Richard Windsor believes "there is obvious rationale for this joint venture as fixed/mobile convergence and the need for scale in Networks are two places where Nokia has been weak."
The deal also raises questions about Siemens's wireless infrastructure relationship with NEC, which has generated significant business, especially in 3G networks. (See Siemens/NEC Claims 3G Leadership, NEC, Siemens Power 3, and Siemens One to Watch in UMTS.)
Siemens's Kleinfeld said today that he had told NEC about the Nokia joint venture "this morning, and we will start talks with them immediately. I see good opportunities to continue" the relationship.
But the early signs are not positive for NEC's long-term involvement. Simon Beresford-Wylie, the Nokia executive who will be CEO of the joint venture, told the press conference that the plan was to create a single line of mobile infrastructure equipment, though continue to support all existing customers and deployments. As he mentioned the single product line, though, he raised a Nokia mobile phone, suggesting that Nokia's technology would dominate future wireless infrastructure R&D.
— Ray Le Maistre, International News Editor, Light Reading