Damaged by lower sales, huge operating losses, and a falling market share, Nokia Siemens Networks is pinning its hopes on a major reorganization.
The network equipment maker, jointly owned by Nokia and Siemens, announced Tuesday that it will lay off 5,700 employees and cut its five business units to three as part of a plan to slash expenses by 500 million euros ($740 million) by the end of 2011.
The layoffs will represent around 7 percent to 9 percent of the company's 64,000 global employees and is likely to be felt across all countries in which Nokia Siemens has a presence. The company did not state which jobs would be affected but did say that any disruption to sales positions that deal directly with customers should be limited.
The three new revamped business units are expected to launch on January 1 and will include Business Solutions, Network Systems, and Global Services.
"As our customers make purchasing decisions, they want a partner who engages in issues well beyond a traditional discussion of technology," said Rajeev Suri, chief executive officer of Nokia Siemens Networks, in a statement. "Business models, innovation, growth and transformation are now very much front and center when it comes to the selection of a technology partner - and our planned new structure will position us well in this changing market."
The company said it's also looking at potential new acquisitions and partnerships that could enhance its product line or expand its customer base. In June, Nokia Siemens bought Nortel's wireless technology for $650 million.
"We recognize that we are operating in a market where customer needs are evolving fast," said Mika Vehvilainen, chief operating officer of Nokia Siemens Networks, in a statement. "We see acquisitions and expanded partnering as important tools to help meet these needs in the fastest, most efficient way possible."
Formed in early 2007, Nokia Siemens has seemed cursed from the start. Its launch was initially delayed a few months due to a bribery scandal involving several former Siemens executives.
The new company had hardly gotten off the ground when it announced it wouldn't meet financial expectations. And it's struggled since then, hurt by the economic downturn and increasing competition.
Third-quarter sales fell 21 percent to 2.8 billion euros, while its operating loss widened to 1.1 billion euros. Parent Nokia was recently forced to spend 908 million euros to write down the value of the deteriorating business.
Nokia on Thursday reported a loss for its third quarter of 559 million euros ($832 million) compared with a profit of 1.09 billion euros in the same quarter of 2008.
The net loss for the period that ended September 30 was triggered by declining sales, which fell 20 percent to 9.18 billion euros from 12.2 billion euros the prior year's quarter. A write-down of the company's weak Nokia Siemens Networks unit also put a big drag on the bottom line.
Net sales for the third quarter came in at 9.8 billion euros, down 20 percent from 12.2 billion in the year-earlier quarter.
Following the news, shares of Nokia stock fell 6.6 percent to 9.62 euros.
Though Nokia's mobile phone sales managed to eke out some gains, overall revenues were hurt by a shortage of components for many of its products.
"The demand for mobile devices improved in many markets during Q3," Nokia CEO Olli-Pekka Kallasvuo said in a statement. "With the average selling price of our devices holding firm quarter-on-quarter, our higher device volumes translated into increased net sales in our Devices & Services business. Our volumes and net sales were, however, somewhat constrained by component shortages we encountered across the portfolio.
The company said that its share of the mobile device market for the quarter was 38 percent, the same as in the year-earlier period and in the second quarter of 2009.
Nokia Siemens Networks, the network equipment unit formed in 2007 and co-owned by Nokia and Siemens, has struggled to turn a solid profit from the get-go. In a write-down of this failing business, Nokia was forced to spend 908 million euros.
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Nokia)
"The challenging competitive factors and market conditions in the infrastructure and related services business necessitated non-cash impairment charges at Nokia Siemens Networks," said Kallasvuo.
Despite weakness in the mobile phone sector, Nokia is optimistic about its near-term outlook. The company now sees volume for its phones hitting 1.12 billion units for the year, down 7 percent from 2008, but better than Nokia's earlier estimate of a 10 percent decline.
Nokia expects the market for its mobile infrastructure and related services market to fall 5 percent for the year from 2008 levels, an improvement over earlier estimates of a 10 percent drop.
However, the future remains cloudy for Nokia Siemens Network, which is likely to see its market share drop even further for 2009 than previously forecast, said the company.
During the third quarter, Nokia also completed its acquisition of GPS map specialist Navteq.
Worldwide server sales suffered a 25 percent drop in the first quarter, hitting their lowest level in at least 12 years, according to a new report from market tracker IDC.
The report, released Thursday, recorded first-quarter factory server sales at $9.9 billion, a drop of exactly 24.5 percent over the same period a year ago--and the lowest level since IDC began covering the market a dozen years ago.
The number of servers shipped fell 26.5 percent from the year-ago quarter, the smallest quarterly figure in the last five years.
IDC breaks the server market into three segments--volume servers (priced under $25,000), midrange ($25,000 to $499,999), and high-end enterprise ($500,000 or more). For the first time since 2002, all three segments saw lower revenue.
The low end of the market suffered the most, with quarterly sales sinking 30.5 percent year over year. Revenue in the midrange market slipped 13.6 percent, while high-end sales fell 19.5 percent.
"Market conditions worsened in all geographic regions during the first quarter as customers of all types pulled back on both new strategic IT projects and ongoing infrastructure refresh initiatives," Matt Eastwood, group vice president of Enterprise Platforms at IDC, said in a statement.
Among the top five server vendors profiled, Dell was hit hardest, with quarterly server revenue tumbling 31.2 percent. Hewlett-Packard showed a 26.2 percent decline. Sun Microsystems watched its revenue dive 25.5 percent. IBM saw its sales drop 19.9 percent. Sales at Fujitsu/Fujitsu-Siemens fell 18.8 percent.
IBM and HP are the top server vendors, with each owning 29.3 percent of the server market.
On an optimistic note, Eastwood did predict a slight turnaround later this year.
"Most enterprise organizations are deferring new IT procurements and instead focusing on extending server lifecycles and improving existing asset utilization," he said. "IDC believes that while these strategies are effective in the near term, server demand will begin to improve in the second half of the year as customers begin to rebuild their IT capabilities in advance of a meaningful economic recovery in 2010."
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IDC)
German conglomerate Siemens AG is looking to end its participation in Fujitsu Siemens Computer, according to The Wall Street Journal, citing "people familiar with the matter."
The joint venture did $10.3 billion in sales last year, but Siemens CEO Peter Loscher apparently isn't pleased overall with the performance of FSC, which never found a real foothold in the U.S. in the face of competition with Hewlett-Packard and Dell.
"We have said that we want to focus on the three sectors--industry, energy, health care--and that we want to concentrate on them," a spokesman for Siemens told Forbes Wednesday.
Following a bribery scandal last year, Siemens is looking to increase its profitability and has recently shed several assets, and announced plans to lay off 4 percent of its workforce.
But Japan-based Fujitsu may not be all that disappointed. In a Tuesday news conference, Fujitsu President Kuniaki Nozoe said that mobile phones are going to be a more profitable business than PCs. That could mean it may not be interested in acquiring Siemens' 50 percent stake in the venture, for which it has right of first refusal.
FSC, which was founded in 1999, wasn't able to take advantage collectively of the companies' individual strengths in Europe and Asia, respectively, and subsequently "foundered on the shoals of a capricious and rapidly evolving IT market," said analyst Charles King of Pund-IT in a research note Wednesday.
The Journal quotes a banker who said the nine-year-old joint venture could be valued at between $3.12 billion and $4.65 billion.
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