NSN's latest moves expose clever inconsistencies
This has been a crazy busy week for Nokia Siemens Networks, with a unit's closure and two divestitures dominating the news. But ultimately it appears the company is on the right track when it comes to ridding itself of non-core assets and ensuring its continued existence.
To recap the week's news so far:
NSN said it will shutter its unprofitable services unit at year-end, laying off 1,000 workers in Germany. The company had reportedly tried to salvage the unit, but threw in the towel after a major contract with Deutsche Telekom was not renewed. The new layoffs will be in addition to 17,000 jobs that were slated for elimination by the company a year ago as part of its overall cost-cutting measures.
In addition, NSN is selling its business support systems (BSS) division to Canadian IT specialist Redknee for €15 million ($19.63 million) plus a maximum of €25 million for "performance-based cash earn-outs." This was one of the industry's worst-kept secrets, as most everyone figured that Redknee's September offering of 13 million common shares to raise nearly $17.83 million was aimed at building a war chest for the NSN BSS acquisition.
The third news nugget was a more of a surprise, at least if you believed what NSN has been saying. NSN has agreed to sell its optical networks business to Marlin Equity Partners, and will shift some 1,900 workers, mostly in Germany, Portugal and China, to a new Munich-based company.
NSN has said for the past year that bolstering its successful optical biz was part of its new core focus, along with building mobile broadband equipment and offering customer experience management (CEM) to operators. Rick Corker, NSN president of customer operations for North America, told me back in February at the Mobile World Congress in Barcelona that NSN's vast optical portfolio enabled it to provide innovative transport solutions for mobile broadband networks, which is why it fit in so nicely with the company's emphasis on mobile broadband.
Obviously NSN changed its mind about its optical business, and one analyst firm is saying, "I told you so."
According to Dana Cooperson, leader of Ovum's network infrastructure telecoms practice, "When Nokia Siemens Networks announced its updated strategy about a year ago it said it was focusing its business on mobile broadband but needed to keep its optical group as a complement. This struck Ovum as odd." She noted NSN's strongest position in optical is in the network core, where there is little connection with mobile broadband.
Moreover, said Cooperson, NSN's optical business is only ranked tenth globally in the $14.9 billion market with just under $500 million in annual sales, and it "has been slipping for years with no clear plan to improve."
Cooperson added that given the intense competition in the optical business, Marlin, the new owner, may actually be intending to sell off the NSN unit it's acquiring to another vendor, such as Juniper Networks.
Ovum has said the telecommunications market is shifting to two types of suppliers, either full-service or specialist vendors. NSN has firmly committed itself to the specialist course, which appears to be working out quite nicely.
For the most recently ended quarter, NSN rose from fourth place to second place in the LTE equipment market after more than doubling its LTE revenue during the three-month period, according to Infonetics, which placed NSN above Alcatel-Lucent (NASDAQ: ALU) and Huawei and behind market leader Ericsson (NASDAQ:ERIC). Other research firms, such as ABI Research and Dell'Oro, have also recently cited NSN's growing strength in mobile broadband infrastructure.
Such dramatic achievements are certainly impressive. But I think NSN deserves the most kudos for being willing to think on its feet. Yes, the vendor tried to save its German services operation and was committed to keeping its optical business, but when those approaches emerged as poor strategies, NSN switched course.
Companies and human beings are often faulted for changing their minds or adopting new views after reviewing additional information, but as writer Ralph Waldo Emerson once observed, "A foolish consistency is the hobgoblin of little minds." NSN's strategic shifts regarding its its services and optical businesses prove the company is thinking big about its long-term future. --Tammy