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Nokia Siemens Aims Higher

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Nokia Siemens Networks (“NSN”), a leading equipment, infrastructure and service provider for telecom networks globally, is focused on gaining the second spot in the lucrative U.S. market. Formed in 2007 as a 50-50 joint venture between Nokia Corporation (NOK) and Siemens AG , NSN currently is the third largest global telecom equipment gear maker. Interestingly, the existing agreement between Nokia and Siemens for NSN will come to an end in 2013. 

Espoo, Finland based NSN is betting on the recent merger talks between Sprint-Softbank and T-mobile USA – MetroPCS as an opportunity to grab new business for the company. However, both the deals are yet to get the FCC (Federal Communications Commission) approval.

According to NSN, if Softbank manages to get hold of Sprint, it could work in favor of the gear manufacturer because of its strong supplier relationship with Softbank. Additionally being a prime network gear vendor for T-Mobile USA, its potential merger with MetroPCS could open up significant opportunity for NSN.

Historically NSN has not achieved much success in the U.S. market as it was way behind in the CDMA (Code Division Multiple Access) based technology – the most dominant network protocol used in the North American market. Moreover, by offering lower bids for network infrastructure contracts, the Chinese vendors like ZTE and Huawei Technologies provided stiff competition to the company.

In an attempt to overcome this difficult situation and to concentrate on its mobile broadband business, the company is reducing its operating cost by retrenching employees and selling its non-core business units. NSN plans to lay off 17,000 or 23% of its work force and expects the restructuring to result in an annual cost reduction of approximately $1.35 billion by 2013.

The restructuring measure yielded positive results for NSN as the company declared its first operational profitability in the third quarter of 2012. Sales in North America also rose 20% last year, thereby increasing the pressure on second biggest equipment supplier Alcatel-Lucent S.A.

We believe that apart from the mergers there are other positives for NSN in the U.S. market. Notably, large scale deployment of 4G LTE network in the U.S. provides significant opportunity for NSN. Telecom carriers are heavily investing in network upgrade to support massive demand for mobile data and video.  Additionally, the Chinese companies are facing political hindrances in the U.S. market over security concerns.   

NSN only came second to industry leader Ericsson (ERIC - Free Report) in gaining LTE revenue in the fourth quarter and has won contracts worth $451.40 million. Though the company still needs to go some way before catching up Ericsson, the above mentioned positives could help the company to capture the all important second slot in the U.S. market.

Currently, Nokia carries a Zacks rank# 2 (Buy).

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