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NSN Expects Flat Broadband Market

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Nokia Siemens Networks (NSN), a leading telecom equipment vendor, predicts a flat growth in the mobile broadband market, inspite of continuous data traffic growth. Formed in 2007, as a 50-50 joint venture between Nokia Corporation (NOK - Free Report) and Siemens AG , NSN is currently the third largest global telecom equipment gear maker.

Espoo, Finland-based NSN expects the broadband market to remain challenging in 2013 as operators around the world keep a tight control on their capital spending and operating expenses. However, the European vendor targets a 5-10% operating margin growth over a long-term period.

NSN has been going through a tough time, as sales have declined mainly due to competition from Chinese manufacturers. The company also lacked severely on the CDMA front, which is the most dominant network used in the lucrative North American market. In its recently declared 2012 results, NSN has seen its top line decline by 2%.

To overcome this difficult situation, the company is concentrating on its core mobile broadband business and 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.

It seems that the restructuring measures have yielded positive results as the company achieved its first ever operational profit in the third quarter of 2012. The positive news continued as sales in North America also soared by 20% last year, thereby increasing pressure on arch rival Alcatel Lucent S.A. .

Telecom carriers around the world are investing in network upgrade mostly in Long Term Evolution (LTE) to support massive demand for mobile data and video. NSN has been part of this growth story and has only come second to industry leader Ericsson (ERIC - Free Report) , in gaining LTE contract.  In the fourth quarter of 2012, NSN has won contracts worth $451.40 million.

Inspite of these positive news, we believe that the macroeconomic uncertainty in the developed markets remain a concern for the company as carriers could reduce their infrastructure spending to tide over the difficult situation.

Nokia, currently carries a Zacks Rank# 3 (Hold).

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