As Nokia Siemens Networks continues to refine its business operations following its April merger, the company has to fend off speculation that Siemens’ CEO is considering a sale of his company’s 50% stake in NSN. Meanwhile, over at newly merged Alcatel Lucent, the story is the same: Alcatel-Lucent’s board was forced to issue a formal statement that it supports its CEO amid grumblings about its future.
Marriages in the wireless space don’t inherently carry unique baggage that would cause them to face greater hardship, but it’s clear they suffer from the same struggles that any merger brings.
Changes at Siemens AG’s executive level, including a new board member brought in to represent the company in its joint venture with Nokia Corp., have caused financial analysts to question the future of Siemens stake in the nearly six-month-old venture. Siemens President and CEO Peter Loscher resigned from the Nokia Siemens Networks board Sept. 30 and appointed Rudi Lamprecht, a Siemens executive, to replace him in that role. Loscher indicated that he would make such a change when he became CEO in late July.
That move, along with the general financial struggles the joint venture has experienced since it began operations, brought on speculation that Loscher is considering a sale of his company’s stake in NSN.
Loscher’s comments at a press conference last week only emboldened those who see a divorce in the offing. “We are absolutely not satisfied with NSN,” he said as he announced the management shake-up; however he declined to comment on whether Siemens wanted out.
Numerous media outlets were quick to point out that Nokia and Siemens are tied up in a six-year deal expected to run until 2013. An early exit by either company would reportedly require mutual agreement by both parties. Neither Siemens nor Nokia Siemens Networks returned calls for this story.
“It’s complicated and half of them fail-more than half of them fail,” said Roger Enter, senior VP of the communications sector at IAG Research. “I don’t think you can break apart that joint venture. If they break it apart, they both lose out.”
Entner said the company is an “ancillary business” for both companies nowadays. “Of course, they are made of out necessity. They both realized that they had trouble in their sectors,” he said. “They were probably one of the best matches there.”
Nadine Manjaro, a senior analyst at ABI Research, said she wasn’t keen to the specifics involving the NSN split rumors, but added that most mergers don’t work. Part of that is due to the merging of two distinct corporate cultures, indeed operating from different parts of the globe, she said.
“When you get together sometimes the culture doesn’t blend together,” Manjaro said.
“They try to be politically correct and not set the direction and people continue doing what they used to do,” she said. “It’s just like anything else, you can’t have two leaders, you need to have somebody in charge.”
Internal changes
Nokia Siemens Networks is in the middle of a streamlining process that calls for a cut in about 9,000 jobs and outsourcing research and development functions to partners in the industry.
Last week Nokia Siemens Networks inked a deal with IBM Corp. to sell multiple business units in research and development and service core and applications to the company. The sale will see up to 235 employees transferred to IBM once the transaction closes, which is expected to take place by early December.
While the businesses will no longer be under Nokia Siemens Networks’ umbrella, the company has entered into a partnership with IBM to continue receiving development activities back from the larger teams at IBM. The two companies will collaborate on program management, product management, architecture, technical support and system-level testing.
Nokia Siemens Networks has been transferring its research and development capabilities to other businesses as part of its overall strategy. The company just last month announced a deal to offload a development center in Herentals, Belgium, to Devoteam Group, a move that included 160 employees.
Sue Spradley, region head for North America at NSN, said late last month that the company’s stated goal is to be a dominant leader in the infrastructure space. The company is rolling out T-Mobile USA’s 3G effort as well as TerreStar Networks’ Internet-HSPA solution for TerreStar’s all-IP integrated satellite and terrestrial wireless communications system.
Eric Simonsen has been named to the permanent position of CFO after having served in the same capacity since June as an interim CFO from AlixPartners, a firm focused on helping businesses manage integration and financial restructuring.
Alcatel-Lucent under siege
Nokia Siemens Networks isn’t the only recently merged company in the infrastructure space facing fresh speculation about its future.
“Look at Alcatel-Lucent, they’re walking wounded,” Entner said.
Last week was a tough one for Alcatel-Lucent. Twice the company was compelled to issue formal statements; first addressing speculation about CEO Pat Russo’s future at the company, and later addressing a reported diminished interest in AT&T Mobility’s UMTS/HSPA buildout.
Alcatel-Lucent’s board of directors issued a formal announcement reiterating its unflagging support of CEO Pat Russo and her leadership team, aiming to nip in the bud speculations about her future place in the company.
“Recent reports in the news concerning a board meeting at Alcatel-Lucent have led to mischaracterized interpretations and erroneous speculations,” the board wrote in its statement.
“While clearly disappointed in the most recent changes in the company’s outlook, the board supports Pat Russo and the leadership team, and the efforts they are making to adapt the company’s plan in light of this year’s developments. The board will review the plan to be developed by management during the next scheduled board meeting on Oct. 30 prior to the release of our Q3 results.”
By Friday the company was putting pen to paper once again. A Financial Times story reported that Alcatel-Lucent could be losing some of its 3G business with AT&T Mobility to L.M. Ericsson. The paper, citing unnamed sources close to the situation, reported that Alcatel-Lucent had delayed in delivering W-CDMA equipment to AT&T Mobility, prompting Ericsson to increase its share of the contract.
“We continue to be a critical W-CDMA supplier to AT&T,” the company said in a statement.
“Our market share has remained relatively stable and we continue to work to meet our commitments to maintain our market share. To speculate otherwise is both inaccurate and misleading,” the statement continued. “We have signed a significant part of the WCDMA contracts awarded since the beginning of 2007.”
The Financial Times reported that Ericsson’s share of the contract would now exceed 50% of the entire project. The original $2 billion contract in 2004 awarded about $900 million to Ericsson, $700 to Lucent and $400 million to Siemens, it reported.
Alcatel-Lucent has struggled of late on Wall Street, having sent three profit warnings this year that downgraded revenue forecasts, and this summer announced the departure of two senior executives. Most of the remaining top leadership comes from Alcatel, with the exception of former Lucent CEO Pat Russo, who is now head of the combined company.
