Earlier this week Nokia Siemens Networks announced a change in strategy that will see it focus on mobile network infrastructure and services.
The reorganization of its business will see the company divest, or manage for value, non-core assets outside the mobile internet and services fields. It has a target of €1 billion of cost savings by 2013, relative to its 2011 cost base.
In making the announcement, CEO Rajeev Suri stated that margins in the infrastructure business have fallen dramatically since the turn of the century. He highlighted increasing competition and the burden of R&D expenditure (NSN spent €2 billion on R&D in 2010) as key factors in the decision, and said that it is no longer possible to be all things to all players. The company will, however, retain an end-to-end play in mobile.
NSN’s targeted savings will largely come from headcount reductions, which it estimates will number approximately 17,000. There will also be internal efficiency drives across real-estate, IT, and general and administrative costs, and a significant reduction in the number of suppliers and in both product and service procurement costs.
The joint venture between Nokia and Siemens has struggled to make a profit since its inception in 2007. There is mounting pressure from its parent companies, and in particular Siemens, to make it more independent, although plans to sell a stake in the organization were shelved over the summer.
This announcement, combined with the appointment of a new chairman and a €1 billion cash injection from its parent companies earlier in 2011, can be interpreted in two ways: either NSN is aiming to become more a competitive, profitable, and financially independent organization, or it is trying to make itself more attractive to potential investors – a difficult task, given Europe’s economic woes.
The company’s matrix organizational structure is set to go, alongside a wide range of product areas that are now considered non-core and will be either divested or managed for value. These include fixed-line VoIP, broadband access, Wimax, narrowband, carrier Ethernet, business support systems, and communications and entertainment solutions.