Change of Nokia management will impact NSN

It has been an eventful few months at NSN and it is set to get more so in the wake of the appointment of Stephen Elop as Nokia’s new president and CEO.

September 20, 2010

3 Min Read
Change of Nokia management will impact NSN
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By Kris Szaniawski

It has been an eventful few months at NSN and it is set to get more so in the wake of the appointment of Stephen Elop as Nokia’s new president and CEO.

Although all the initial reactions have focused on Nokia’s mobile handset business the impact on the NSN joint venture between Nokia and Siemens could prove to be equally dramatic. Reports that Nokia and Siemens have been holding talks with private equity companies about selling a stake in NSN have already cast doubts about the commitment of the two partners to the joint venture, as has speculation that the investment could eventually pave the way for an IPO.

Now the anticipated change of management strategy as well as Elop’s software and change management background at Microsoft and Macromedia/Adobe could help to accelerate this process. Elop can be expected to want to focus on transforming Nokia’s handset market share and underperforming smartphone business rather than have to also concern himself with NSN. Fighting a war on two fronts is never easy, the more so when it is the likes of Apple and Huawei that you are going up against.

Also as a newcomer to the company Elop brings less historical baggage to the role. He is unlikely to retain the same lingering attachment to the infrastructure business as his predecessor Olli-Pekka Kallasvuo.

NSN has come in for some deserved criticism for its performance over the past three years but things have been looking up recently and the company would make for an interesting investment.

NSN’s planned acquisition of Motorola’s $1.2 billion wireless networks business announced in July has been the biggest development in recent months. It’s a significant deal not just because of the scale but also because it brings 50 new operator customers into the fold and most importantly Tier 1 North American operators.

The Motorola acquisition along with news a day later of a major $7 billion mobile infrastructure deal with Harbinger Capital Partners/LightSquared not unnaturally refocused interest on NSN’s traditional infrastructure business but that is only one side of the story.

The 50 operators that come as part of the Motorola deal are not just potential new mobile infrastructure customers; they are also hot new prospect for NSN’s increasingly broad software portfolio as well as its expanding services business. As we’ve highlighted before, NSN is increasingly focusing R&D on areas such as real-time charging, service management and network-management-capabilities as well as buying into the fast-growing subscriber-data-management (SDM) market with the acquisition of Apertio in 2008. NSN has done well out of the SDM market and would like to repeat this success in other areas.

NSNs interest in new areas of business continues unabated. Earlier this week NSN announced a £4 million investment in application server and service brokering company OpenCloud. NSN plans to integrate OpenCloud’s technology into its convergent charging and billing tools.

It is fair that NSN’s performance has received a lot of negative attention in recent years but it is also the case that the rate of sales decline has recently begun to flatten out. For example NSN’s 2Q10 performance may have been disappointing but it was still significantly up on the previous quarter. Continuing issues with security clearance in India and component shortages may have contributed to short term pessimism about being able to grow faster than the market this year but NSN still expects to record an operating margin of breakeven to two per cent this year. This is may not be impressive but neither will it be the €1.6 billion ($2 billion) loss recorded last year. Also according to NSN’s chief executive Rajeev Suri NSN has increased its market share of in the first two quarters of this year.

NSN does not normally provide information about the performance of specific product lines but it is significant that that it saw fit to reveal in its last set of results that almost 50 per cent of 2Q10 sales were accounted for by its services division.

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