Plight looks to be easing for Nokia Siemens Networks

Swedish Ericsson is still larger and more profitable networks company than its Finnish-German competitor

Rajeev Suri

Hans Vestberg

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The worst would seem to be over for the Finnish-based telecommunications equipment supplier Nokia Siemens Networks (NSN), which has long suffered from economic difficulties, at least if the company’s result is measured against the result of its closest competitor the Swedish Ericsson for the beginning of the year.
      In Q1/2010 NSN’s operating profit without one-time capital gains was EUR 15 million, despite the fact that the company’s net sales were down by nine per cent. At the beginning of 2009, the company’s operating loss for the quarter was EUR 122 million.
     
In the same comparison period Ericsson’s operating profit declined around four per cent when measured in the Swedish krona and slightly more when measured in the stronger euro.
      On account of seasonal variation, the first quarter is always the weakest in the network equipment market. So, even in that respect the Q1 result of NSN can be regarded as a sign that the company has now cleared the worst of its troubles.
      Despite the shrinking of its operating profit, Ericsson remains markedly larger and more profitable than Nokia Siemens Networks.
     
Both companies are currently undergoing significant economic belt-tightening programmes. Business activities are being restructured in accordance with the stalled growth in the network equipment market.
      Because of the recession, some of the network operators have postponed their investments and some have experienced financial difficulties because of the exchange rate fluctuations.
      NSN’s profitability target for the current year is modest: Nokia reckons the operating profit will place itself somewhere between 0 and 3 per cent. For January-March 2010 it was 0.5 per cent. Ericsson, in turn, recorded an operating profit of 10% for the same period.
      In addition to the introduced economic measures, what also eased off the situation for NSN was the lowering of product expenses and the picking up of software sales.
      On the software side, the margins are usually better than in deliveries of network equipment.
     
From the published results it also becomes apparent that both companies’ principal market area is Asia, where the rapid growth in the use of mobile phones forces teleoperators to invest in their network operations.
      In North America, Ericsson’s net sales doubled in the first quarter of the year thanks to the purchase of the CDMA operations of Nortel, which has entered into debt restructuring.
     
Rajeev Suri, who became the CEO of NSN in the autumn, has announced as his objective for the firm the strengthening of the company’s market position through acquiring new customers.
      Ericsson CEO Hans Vestberg, in turn, has recently emphasised in various connections the importance of technological edge, as in the future an ever-increasing proportion of electronic equipment will be connected to the Internet.


Previously in HS International Edition:
  Nokia Q1/2010 results improved, but share price hammered 14% in Helsinki (23.4.2010)
  Nokia Siemens Networks to cut 450 jobs in Finland (5.3.2010)

See also:
  Simon Beresford-Wylie replaced by Indian Rajeev Suri as CEO of Nokia Siemens Networks (2.9.2009)

Links:
  Nokia press release
  Nokia Siemens Networks
  Ericsson press release

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