Nokia Siemens CEO: We will be one of three surviving network vendors

Tools

BARCELONA, Spain--Rajeev Suri, CEO of Nokia Siemens Networks, contends the slowing telecom infrastructure market will soon be able to support only three profitable network vendors, and NSN aims to be one of them.

"You're going to see radical change in the infrastructure provider sector with clear winners and losers starting to emerge, and with a fundamental change in how those providers must manage their businesses," said Suri, during a press conference on the eve of the 2013 Mobile World Congress here.

Suri showed NSN is not shy about poaching employees as well as business from its rivals. Suri announced from the stage that NSN has hired Eva Elmstedt away from Ericsson (NASDAQ:ERIC) to head its services unit, which currently generates about 50 percent of NSN's revenue. "I am absolutely thrilled to have her on my team," said Suri.

In late 2011, NSN embarked on a controversial strategy that involved mass layoffs of 17,000 employees and focusing the business on specific geographies--specifically the United States, Japan and South Korea--and specific business sectors, namely mobile broadband, which extends beyond the radio access network to include IMS, customer experience management (CEM) and more. The company has also divested, or intends to divest, a total of seven businesses and has put three others in what it calls "maintenance."

The shift appears to be paying off, as Suri said NSN expects to save more than $1.3 billion in operating expenses by the end of this year. Since starting the restructuring, NSN's operating expenses are down 11 percent, internal headcount has been slashed by more than 15,000, NSN's external headcount was reduced by more than 4,500 and there were 217 site closures.

"What a remarkable difference just one year can make," said Suri, as he ran through a series of second-half 2012 key performance indicators that he claimed prove NSN is outpacing much of the competition.

Though Suri did not name the specific competitors by name, he did say one particular rival--likely Huawei--was not included in the comparisons due to "a lack of transparency in their financial reporting." That would leave Ericsson, Alcatel-Lucent (NASDAQ: ALU) and Samsung as the likely rivals cited in Suri's presentation.

"2012 was the best year in the history of NSN," said Suri. Among other things, NSN's second-half 2012 gross margin of 34.2 percent was the best among all competitors, said Suri. The vendor has also enjoyed five straight quarters of free cash flow generation.

Suri did not compare sales figures, saying market share has not been a priority for NSN, which is more focused on profits. Last week, ABI Research said Ericsson and Huawei were closely matched in radio access network (RAN) market share for full-year 2012 with each holding about 24 percent, followed by Nokia Siemens Networks, Alcatel-Lucent, ZTE, Samsung and NEC. However, during the fourth quarter of 2012, NSN jumped to second place in quarterly RAN market share after market leader Ericsson. In the fourth quarter, Huawei ranked third, and Alcatel-Lucent was in fourth place.

ABI said 2012's fourth quarter global mobile infrastructure RAN revenues slipped 2.5 percent from the same quarter a year earlier.

NSN has 78 global LTE references and 17 percent LTE infrastructure market share for the full-year 2012, said Suri. The vendor has 11 TD-LTE commercial contracts and is working closely with China Mobile on developing the technology.

There could, however, be choppy waters ahead for NSN, as Suri acknowledged the vendor has big projects that will wrap up in 2013, and the company has yet to replace them. But he said NSN remains focused on its long-term ambition of generating annual operating margins of 5 to 10 percent.

Suri said NSN hopes to pick up steam in the United States, where the vendor has made significant headway despite missing out on LTE RAN contracts with market leaders AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ).

The vendor's efforts could be bolstered by what Suri claims is NSN's growing prowess in quality. In two unspecified networks where operators have split RAN deployments between NSN and another vendor, NSN's LTE network throughput outpaced the completion, said Suri. In addition, 98 percent of NSN's mobile broadband product lines are on the "path to virtual zero" defects at network launch.

NSN is now "differentiating on quality," said Suri, indicating that will help NSN obviate the need to compete solely on price.

At the Mobile World Congress in 2012, Suri predicted mobile customers will consume 1 gigabtye of wireless data per user per day by 2020, which will require 10 times more sites, 10 more efficiency and 10 times more spectrum. "Monetizing the investment to meet that demand remains the sector's biggest challenge," he said during this year's press event.

NSN also made several MWC 2013 product announcements, highlighted by its introduction of Liquid Applications, which leverage the company's new Radio Applications Cloud Server (RACS). The server enables localized processing, content storage and access to real-time radio and network information in the base station to enable more localized information delivery.

"For example, information about the area surrounding the base station, such as that used in augmented reality applications, or news and video content that is trending across an operator's network, can be placed at the base station for instant local access to connected devices," said the vendor.

SK Telecom will evaluate NSN's RACS during the first half of 2013.

In addition, NSN and IBM announced they are collaborating to deliver the world's first mobile edge computing platform that can run applications directly within a mobile base station.

For more:
- see this NSN release, this release and this release
- see this Bloomberg article
- see this ABI release

Related articles:
Nokia Siemens charges to profit in Q4 as sales increase, costs drop
Nokia Siemens may sell $1B in bonds
Nokia's Weber: We'll focus on imaging, location in 2013
Nokia Siemens eyes U.S. as key market in turnaround
NSN CEO dismisses wholesale network model, touts LTE contracts
Nokia Siemens will focus on profits, not market share, says chairman