Nokia Should Let Go of NSN

JUNE 30, 2011   THE WALL STREET JOURNAL

By HESTER PLUMRIDGE

Nothing seems to be going right for Nokia. With its shares down 45% this year and its credit rating one notch above junk status, investors were hoping the mobile group could net up to $1 billion from the sale of a stake in its joint venture with Siemens to private equity. That now looks unlikely. Nokia needs a new plan.

Back in 2006, when Nokia and Siemens agreed to merge their network equipment and related support-services businesses, the combined business offered economies of scale. But Nokia Siemens Networks hasn't been profitable, and has lost market share to low-cost Chinese competitors and market-leaderEricsson, which has been more successful in providing the integrated hardware and support services that customers want.

Efforts to sell first a minority, and then a majority stake for around $1 billion to $2 billion, have now stalled. Despite interest from several private-equity consortia, negotiations foundered over price and control. The focus is now on restructuring NSN, which might require more cash from its parents, according to someone familiar with the situation.

Nokia investors wouldn't welcome it pouring money into NSN, given the difficulties faced by its core mobile-handset business; ratings agencies have expressed concern about its future cash-flows. NSN is Nokia's second-largest division by revenues, and its €686 million operating loss made a big dent in the group's €1.9 billion earnings last year.

Alternative strategies are now under discussion, including the sale of certain NSN assets. NSN could also seek a stock-market listing. But one option appears firmly off the table: neither Nokia nor Siemens will contemplate selling their entire stakes in the business.

That is a pity. A trade buyer could extract substantial synergies from acquiring NSN, justifying a much higher valuation. Samsung is looking to grow its network-equipment businesses; Huawei could use a boost to its services offering. A sale of NSN could bring Nokia a much-needed potential $3 billion to $5 billion in cash; it could also remove the final obstacle to a re-rating of Siemens shares, notes Morgan Stanley. NSN's owners should think again.

Write to Hester Plumridge at Hester.Plumridge@dowjones.com