Nokia and Siemens are being forced to invest a further €1 billion in their infrastructure joint venture after failing to secure private equity investment.
The pair will invest an additional €500 million each in Nokia Siemens Networks, as they seek to overturn operating losses and boost the joint venture’s margins. The business generated a loss of €111 million and a margin of just 1.1% in 2Q11.
A long struggle for profitability has seen the partners court private investors since late 2010, however they never ruled out pumping more funds into the infrastructure business.
Fitch Ratings believes the move is a genuine attempt to give NSN the “operational and financial flexibility to turn itself around,” and that Nokia’s investment will be easily covered by the firm. Crucially, that means no change to the Finnish vendor’s credit rating, which Fitch maintains at BBB-.
However, the ratings agency points out there remains a risk to Nokia if further cash injections are required.
The partners hinted at sweeping operational changes afoot at NSN by appointing Jesper Ovesen as executive chairman. The 54 year old was previously chief finance officer at Danish telco TDC, overseeing that firm’s restructuring and IPO. In a joint statement, Nokia chief Stephen Elop and Siemens chief finance officer Joe Kaeser revealed Ovesen will “be responsible for strategy oversight as Nokia Siemens Networks transitions towards a strong standalone entity.”
Separately, Nokia revealed it will close a feature phone production plant in Romania in favor of manufacturing sites in Asia Pacific, as it seeks to boost its operating efficiency. Factories in Finland, Hungary and Mexico will gradually change their focus from device production to customer and market-specific software.