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.
(Credit:
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.
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