These 2 Telecoms Should Make a Quick Buck With This Asset Sale
What's a beleaguered company to do in the face of ugly losses? Well, if you're onetime telecom powerhouse Nokia (NYS: NOK) and you have a thriving joint venture with another global tech player such as Siemens (NYS: SI) , perhaps the answer is to sell off a few bits of that business. That's what appears to be happening in said joint venture, networking equipment and solutions provider Nokia Siemens Networks, which has apparently found more than one interested buyer for one of its key units.
Supplying the world
Nokia Siemens Networks, or NSN, is a big player in its specialized game. The company is No. 4 on the international league table of top telecom equipment and service providers, in terms of 2011 revenues. That ranking put it just behind such prominent global players as Ericsson (NAS: ERIC) , Chinese up-and-comer Huawei, and international telecoms veteran Alcatel-Lucent (NYS: ALU) .
NSN's client list covers basically every big mobile provider throughout the world; the company isn't shy to point out that (one way or another) around a quarter of the globe's population uses its products.
Nokia's travails have been well publicized in recent times. Once the top cell-phone maker in the world for a hard-to-believe 14 years, it's now a quickly fading No. 2 behind Samsung. The Finnish company's results have been sliding even more precipitously; annual revenues have dropped from nearly $59 billion in 2009 to just over $50 billion in 2011. Net plunged deep in the red to a bloody $1.9 billion last year, and the company's been deeply unprofitable so far in 2012.
Although Nokia's shares have benefited from optimism over its new pair of Lumia smartphones (which will use the brand new Windows 8 operating system), the company is nowhere near out of the financial woods. That's why the scuttlebutt about the sale of the NSN unit -- specifically the business support systems division, the part of the company that supplies billing systems for telecoms -- is very welcome news.
At the moment, it's unclear how much the division can be sold for. It's also uncertain whether Nokia's share of the proceeds will be reinvested purely in NSN or diverted, at least partially, to the parent company. Regardless, it's a good sign that the company is making a sensible move to divest parts of its business and will generate some cash by doing so.
Going once, going twice ...
There's a chance that lucky Nokia and Siemens will have a bidding war on their hands for the business support systems unit. Apparently the front-runner in the deal is NSN's leading rival, Ericsson. Once upon a time the company, like Nokia, did much of its mobile business through the sale of handsets. As competition from its fellow Nordic company grew stronger, it eventually retreated from that segment, selling what was left of its handset manufacturing business to onetime joint-venture partner Sony.
These days, it's No. 1 in the world in the business support systems and operations support systems niches, hence its interest in the highly complementary NSN unit.
But it's not the only interested party. According to media reports, another mobile-services player has designs on it -- Amdocs (NYS: DOX) . That company isn't nearly as big as Ericsson, taking in $3.2 billion in revenue in its most recent fiscal year compared with the Swedish company's $34 billion. It's also got a much thinner wallet, with $831 million in cash as opposed to Ericsson's $12 billion. If there is a bidding war it'll probably be short, given the discrepancy, but any ramp-up in price will only benefit the selling partners.
As is standard practice in any big-time deal that still requires signatures, no one involved is offering any comment on the matter. Nokia and Siemens are probably busy figuring out how they can further consolidate their joint venture; last year they determined to narrow the focus of the company to providing products and services for broadband mobile. This is smart, given the increasing thirst for data, thanks to the unstoppable proliferation of smartphones and the resultant need for providers to widen their pipes.
The JV's slimming initiative is large-scale and serious. It's to let go of nearly one-quarter of its workforce, or around 17,000 people. The business support services divestment is a part of this effort. The good news for Nokia and Siemens shareholders, though, is that since the unit seems to be considered a prize worth vying for, they aren't desperate and need not sell it at fire-sale prices. Rather the opposite -- they'll probably command a premium and walk away with a tidy sum, which, in Nokia's case at least, is badly needed these days.
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