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Nokia Siemens plans restructure following slumping profits

Chris Andrews

Company files suit against Apple whose profits continue to surge

Last month Nokia Siemens Networks reported their Q3 results, and the results didn’t look good. The company has experienced a 21.2% decline in net sales compared to the same period in 2008, and a 13.7% decline from the second quarter of this year.

Compare this to Apple for example, whose third quarter results were posted in July. Boosted by iPhone sales, the company showed a net quarterly profit of $1.23bn, up from $1.07bn in Q3 2008, and sales continue to go strong.

Fast forward to November, and NSN has announced a comprehensive plan to improve its financial performance and return to growth. This plan includes reorganising business units in an effort to better meet the needs of its customers, big cost cuttings, and expanded partnering and potential acquisitions (not to mention suing Apple, but more on that later).

On the first point, NSN said that it will reduce its five business units to three by 1 January of next year, re-focussing on ‘business solutions’, ‘network systems’ and ‘global services’

The company’s chief executive, Rajeev Suri, said: "As our customers make purchasing decisions, they want a partner who engages in issues well beyond a traditional discussion of technology. Business models, innovation, growth and transformation are now very much front and centre when it comes to the selection of a technology partner - and our planned new structure will position us well in this changing market."

In terms of cost reduction, NSN said it would be targeting a reduction of annualised operating expenses and production overheads of €500 million by the end of 2011 compared to the end of 2009. It aims to realise these reductions in areas including real estate, information technology, site optimisation, strategic workforce rebalancing, and overall general and administrative expenses. It will also be reviewing its workforce, and while customer-facing roles are unlikely to be impacted, in line with its new customer focussed approach, there is the possibility the company’s 64,000 strong workforce could be slashed by seven to nine per cent.

NSN said it would also be looking at the potential of additional partnerships, and that it would be targeting assets for acquisition that ‘enhance the scale of existing product and service business lines and that deepen relationships with key customers’.

"We recognize that we are operating in a market where customer needs are evolving fast," said Mika Vehvilainen, chief operating officer of NSN. "We see acquisitions and expanded partnering as important tools to help meet these needs in the fastest, most efficient way possible."

Major restructuring and workforce culling is something of a worrying situation for any business, and for further proof that NSN is indeed worried, a week after posting its third quarter losses, it announced that it was suing Apple over patent infringement. The timing of this is difficult to ignore.

NSN said that it had spent over €40bn during the last two decades on research and development, and that Apple was now trying to get a ‘free ride’ on the back of its innovation.

The ten patents in suit relate to GSM, 3G and wireless LAN standards, covering wireless data, speech coding, security and encryption, all of which NSN said had been infringed by all Apple iPhone models shipped since the iPhone was introduced in 2007.

NSN said it had already successfully entered into license agreements, for the patents in question and others, with approximately 40 companies, including virtually all the leading mobile device vendors.

"The basic principle in the mobile industry is that those companies who contribute in technology development to establish standards create intellectual property, which others then need to compensate for," said Ilkka Rahnasto, vice president, legal & intellectual property at Nokia. "Apple is also expected to follow this principle. By refusing to agree appropriate terms for Nokia's intellectual property, Apple is attempting to get a free ride on the back of Nokia's innovation."

On a different note, NSN has also launched its first smart phone for China Mobile’s 3G network, expected to begin selling by the end of December. At the end of September China Mobile reported approximately 508 million mobile subscribers, with around 1.6 million of those subscribers using the company's 3G service. If NSN can capture a decent segment of these users, that will surely be good news for its bottom line, particularly if China Mobile’s 3G network continues to expand as anticipated.

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