Who's Going to Buy NSN?
It'll be a while before this question is answered. NSN has only just started the sort of restructuring of its organization, workforce, pension liabilities and the like that will need to be substantially complete before a sale can be agreed. And the fate of Nokia's huge 2G, 3G and 4G IPR portfolio -- and NSN's access to it -- is also set to feature front and center in deliberations and negotiations.
As and when the fog begins to clear around these issues, the longest shot of all acquirers, in my view, are the Chinese. ZTE would undoubtedly give anything for NSN's global account footprint -- and some of its mobile infrastructure products –- but it's questionable whether it is culturally ready for such a move, questionable whether Siemens and Nokia would be willing to sell to ZTE- and questionable whether it would meet with approval at the relevant political levels. Some of the same factors apply in the case of Huawei, albeit with a generally superior product portfolio to ZTE's, and already rivaling Ericsson as the world's largest telecom infrastructure vendor, Huawei has less to gain.
Next up is Alcatel-Lucent. The corporate cultures of Alcatel-Lucent, Nokia and Siemens are all steeped in the concept of "European industrial champions," nurtured, aided and abetted by the institutions of the EU. With NSN finding it hard going on its own, there are still the remnants of a reflex in European business and political circles that says that Alcatel-Lucent is the right partner, European champion-wise.
It's an idea that's increasingly easy to shoot down, however. In the first place, the last thing two hard-fought merged companies need is another hard-fought merger. And second, wherever the balance between nation state and centralized European institutions comes to rest once the continent's current turmoil eventually subsides, it will certainly be a good while before that settlement is reached. In the meantime, Germany, Finland and France cannot be counted on to act in the wider interests of "European champions" to the extent that they could in the relatively recent past.
The first of the serious contenders, in my view, is the private equity sector. Granted, talks with various of these companies broke down a year ago, but they are unlikely to have disappeared from the scene altogether. Don't ask me which ones, but the right deal from the right partners could still be potentially attractive to NSN's shareholders.
Among prospective vendors, I'd have Samsung down as the next most likely candidate. The company is showing real commitment to the mobile infrastructure business. Building on an already sizeable 3G and 4G infrastructure footprint in South Korea, Japan and the U.S. Samsung has built up significant credibility in the LTE infrastructure market, featuring on the approved short-lists of a number of the major global carrier groups. Now in India, Samsung is believed to have won the first-phase TD-LTE infrastructure rollout for Reliance Industries. NSN would provide Samsung with a tremendous global footprint to build on. And with its strong commitment to both mobile infrastructure and mobile devices, no other prospective bidder has as much to gain as Samsung from gaining access to Nokia's IPR -- or indeed, from acquiring both Nokia and NSN. That said, Samsung would need to make a very marked break with its own corporate tradition and culture to take on such a large European acquisition. The real extent of the company's willingness to go through with such a move is likely known by a select few in Seoul, South Korea.
Ericsson should inevitably be considered a strong contender. Remember when Ericsson bought Nortel's mobile infrastructure assets three years ago? That was actually a key fork in the road in NSN's relative decline since, also triggering the resignation of then-CEO Simon Beresford-Wylie. That was no coincidence either, because preventing NSN from buying a ready-made foothold in the U.S. 3G and 4G market was a more important motivation for Ericsson than securing an extension to the large U.S. footprint that it already had anyway. Why should Ericsson buy NSN now? To consolidate its leadership position and maybe tick some "European Champion" boxes, insofar as they count these days. And just because they can. It would be ironic in a number of ways -- but don't bet against it.
Sticking my neck out, I'm going to plump for NEC as the most likely acquirer. I have no inside intelligence to go on here -- just going on a combination of NEC's historic commitment to the global mobile infrastructure market, together with evidence of a significant change in the international M&A outlook on the part of Japanese corporations in the last couple of years.
The historical evidence points to NEC having a strong interest in NSN -- the W-CDMA joint venture between NEC and Siemens was actually tremendously successful in leveraging NEC's early lead in W-CDMA technology and combining it with Siemens' formidable account muscle in Europe and parts of Asia (and even the U.S. at one stage). Back in 2005, the Siemens-NEC joint venture was neck-and-neck with Ericsson and Nokia Networks, with more than 25 percent market share in W-CDMA infrastructure. Those hard-won gains then dwindled away as Siemens exited the joint venture to partner with Nokia Networks in NSN -- leaving NEC to pull in its horns and retreat back to Japan.
These days, however, leading Japanese corporations are increasingly taking a much more acquisitive outlook with respect to international markets. Japan's economy has been stagnating for years, and the Japanese population itself is also expected to decline markedly. There is a lot of momentum on the part of "Japan Inc." behind refocusing on international markets as well as learning from past mistakes. And clearly one of those past mistakes was pussyfooting around half-heartedly. According to Dealogic, an investment research firm, overseas mergers and acquisitions by Japanese companies reached $84 billion last year and are expected to hit an even higher number this year.
It would certainly take a marked break in NEC's corporate culture to take the plunge and commit to a telecom infrastructure acquisition of the size of NSN, rather than dip its toe in the water as it has done in the past. But the business environment in Japan and internationally is changing: What would have been unthinkable some years ago could yet provide the answer to the NSN question.
— Patrick Donegan, Senior Analyst, Wireless, Heavy Reading