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Recently, Germany’s Manager Magazine Online reported that Nokia Corp’s (NOK - Analyst Report) wholly-owned subsidiary, Nokia Solutions and Networks (“NSN”), is exploring strategic options to acquire network infrastructure maker Juniper Networks Inc. (JNPR - Analyst Report). However, neither Nokia nor Juniper has confirmed this news. Currently, both Nokia and Juniper carry a Zacks Rank #2 (Buy).  

Notably, Nokia has decided to vend its core mobile handset and services division to Microsoft. The deal is expected to close in the first quarter of 2014. Post the divestiture, NSN will become the company’s chief business division with approximately 90% of the total revenue.

The other division will be HERE, which offers digital map information and related location based content and services for automotive navigation systems.

The division was earlier operating as Nokia Siemens Networks and adopted the current name after Nokia purchased a 50% stake in Siemens in 2013. The NSN division has been facing double-edged problems since its initiation in 2007.

Firstly, it has a restricted foothold in the lucrative North American region and secondly, the emergence of low-cost Chinese vendors, namely, Huawei Technologies and ZTE, has intensified competition.

Over the last four years, Nokia has been trying to revamp its NSN division. In 2011, NSN acquired CDMA-based wireless infrastructure assets of Motorola Solutions to gain competitive edge in the North American region.

Meanwhile, Nokia has been striving to sell NSN division to private equity groups. Last year, some industry report stated that Nokia is considering acquiring Alcatel-Lucent S.A. (ALU - Analyst Report) to strengthen its U.S. business, which the company ultimately rebuffed.

The NSN division continues its weak performance and margins are persistently declining. Also, the company has failed to gain market share from big competitors like Ericsson AB and Cisco Systems Inc. (CSCO - Analyst Report) and is also losing market traction to Huawei Technologies and ZTE.

We believe a merger between NSN and Juniper Networks will be beneficial to both in attaining scale and enhancement of product portfolio for mobile broadband infrastructure.

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