Nokia (NOK) Acquires Siemens' (SI) 50% Stake in NSN
Shares of Nokia (NOK) rose 4% last week, after the company reported that it will acquire Siemens' (SI) 50% stake of its joint venture, Nokia Siemens Networks (NSN). Nokia will pay 1.7 billion euros ($2.2 billion) to take over the mobile telecom equipment manufacturer, which was the Finnish handset maker's only profitable business segment last quarter.
NSN also accounts for roughly half of Nokia's revenue, due to the diminished size of its mobile handset segment. NSN is currently the third largest manufacturer of mobile telecom equipment in the world, after Ericsson and Huawei. Daily Chart
Nokia, which had $13.51 billion in cash and $7.28 billion in debt at the end of last quarter, should be easily able to afford the acquisition. After the acquisition, NSN will become the company's most significant business, and will account for two-thirds of the company's top line. This is a wise strategy in a time when the future of its Lumia Windows Phone is still unclear. Microsoft (MSFT
) Windows Phones, 80% of which are manufactured by Nokia, currently claimed the number three spot in the mobile OS wars, with a 3.2% global market share at the end of the first quarter. Although that trails Android's 75% and iOS' 17% by a wide margin, it was a significant increase from the 2.0% market share it reported in the prior year. Although NSN dragged on both Nokia and Siemens' bottom line growth when the joint venture was conceived in 2007, the mobile network equipment business has been booming lately thanks to increased demand for higher-speed 4G and LTE networks. NSN also gained significant market share in 2012, when it briefly took over the No. 2 spot in the third quarter of 2012. Even though the joint venture is a more lucrative investment today, Siemens is attempting to slim down to its core businesses (industry, energy, transportation, healthcare), after its revenue declined 6.7% year-on-year last quarter. Nokia's takeover of NSN also comes in at a much lower price than some analysts had estimated. There was speculation that Siemens would force Nokia to pay a significant premium up to 2.5 billion euros for the stake, which is valued at 1.7 billion. In the end, Siemens accepted Nokia's 1.7 billion offer, much to the relief of Nokia shareholders. Nokia will face two major tests soon. The first will be its sales of the Lumia 925, the lighter variant of its popular flagship Lumia 920. If sales are strong, then it will indicate continued demand for Windows Phones, which bodes well for the future of the platform that Nokia dominates. The second will be the death of its aging OS Symbian this summer. Once Symbian is phased out, analysts will be watching if these feature phone users (many of them in emerging markets) finally upgrade to Nokia's Windows Phones. If Nokia can pass both tests, as its NSN revenue and profits continue growing, then the company could have a bright future ahead. Other News About NOK Nokia Oyj: Today's Featured Telecommunications Winner
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Published on Jul 12, 2013
By Leo Sun