Today, Nokia announced it was buying-out its telecom equipment manufacturer (TEM) partner Siemens AG for about US$2.2b, reported as a good deal for Nokia and part of a Siemens refocusing on higher growth industrial markets. Unlike Nokia and its handsets, Nokia Siemens Networks (NSN) has been profitable since downsizing last year, but the joint venture didn’t get any takers when shopped to private equity firms (who likely tried to first shop it to the likes of Cisco, HP and/or Oracle). NSN was formed in 2007 and has about 60,000 employees focused on keeping people connected in over 150 countries world-wide. Last year, NSN sold it optical fiber business to Marlin Equity Partners and fixed broadband access assets to Adtran. Siemens Enterprise Communications still holds a big stake in Enterasys, an enterprise networking player formed from Cabletron.
Primarily a mobile broadband player, NSN is a leader in 4G/LTE mobile radio, following Ericsson and followed by Huawei and Alcatel-Lucent (who announced their ‘Shift Plan’ two weeks ago) in average share. Huawei’s critical network infrastructure equipment traction has been slipping in some developed nations due to unresolved security concerns, giving NSN and others an opportunity to maintain current radio equipment margins. And the tide continues to come in for 4G/LTE global network build-outs, raising all ships. But more cost-effective network scaling is needed to support more bandwidth without more revenue from end-users, and virtualizing/automating what can be appears to be the key for network operators.
NSN’s mobile radio portfolio is rounded-out by evolved packet core (EPC), IMS based SIP controller, policy control server and home subscriber server; and these product-lines are well suited and targeted for migration to NFV architecture as outlined by the European Telecommunications Standards Institute’s NFV working group. NSN also offers software based customer experience management (CEM), OSS/BSS and network management. Like other TEMs, the question investors ask remains how quickly can they migrate to software based revenue models. And like other TEMs, the challenge is to not starve or slaughter their cash cows until their rising stars are ready to shine! Do you atribute shifts in the TEM market to NFV?