Reengineering NSN back to the black

By Edwin Yapp December 5, 2013

Finnish giant reinvents itself by focusing on mobile broadband; share buyback seems positive
Banking on quality of products, expertise and customer experience to bag contracts in Asia

Reengineering NSN back to the black Nokia Solutions and Networks (NSN) is confident it can grow its market share in today’s highly competitive wireless infrastructure landscape, especially since it reengineered itself to be much more focused on the mobile broadband business in the past two years, according to its top regional executive.

Speaking to the media on Dec 3, John Lancaster-Lennox, NSN head of Asia South, said the telco giant is poised to grow its business in Asia Pacific and believes it can do so successfully as it has begun to reap the benefits of its restructure.

He said NSN has had six consecutive strong quarters of positive operating profit margin after registering negative profit in the beginning of 2012.

“We are in turnaround [mode] and are executing a strategy to divest certain businesses we owned,” he told Digital News Asia (DNA) on the sidelines of the briefing.

“We are also optimising our workforce, ensuring that our investments are in right areas, becoming more lean and mean, and focusing much more on our research and development (R&D) to bring better products to our customers.

“It takes time and we didn’t see the benefit immediately when we first started, but small amounts of savings took us from a negative operating profit to slightly positive. Finally, when various savings started to kick in, we were able to attain a stable operating profit and positive free cash,” Lancaster-Lennox said.

NSN, formerly known as Nokia Siemens Networks, was born in 2007 as a result of the amalgamation of two of Europe’s most renowned mobile wireless infrastructure players.

The goal of the 50-50 joint venture was for the two separate companies – which were not considered as clear leaders in the business – to gain greater scale so that they could compete.

Competitors included Franco-American giant Alcatel-Lucent, China’s Huawei Technologies and ZTE, and also Sweden’s Ericsson, which has been and still is the world’s largest wireless infrastructure gear maker.

According to The Wall Street Journal, Nokia Siemens Networks initially struggled to gain traction and was bloated with high costs and too many staff in an industry dominated by Ericsson and cheaper equipment from Huawei Technologies and ZTE.

By the end of 2010, it had generated a cumulative reported operating loss of €5 billion (US$6.8 billion), forcing Nokia and Siemens to inject €1 billion (US$1.4 billion) of fresh capital into the venture in 2011, the business daily noted.

Then in a move widely lauded by the industry and the market in June 2013, the Espoo, Finland-based player bought out its German partner to create NSN in a deal worth €1.7 billion (US$2.3 billion), the Journal reported.

Reengineering NSN back to the black Lancaster-Lennox (pic) acknowledged that prior to 2011, NSN had “lost its way” and grown too wildly for its own good when it owned all kinds of businesses not necessarily related to mobile broadband.

Asked what kind of restructuring took place within NSN from 2011 to 2013, he said NSN divested a lot of non-mobile broadband gear by selling off assets such as WiMax infrastructure, intelligent network platforms and its optical networks business.

“In 2011, we realised we couldn’t be everything to everybody,” he explained. “We could continue down the path and see where it led, or we could focus on the targeted space -- that is the mobile broadband (MBB) space, customer experience management, building high quality products. [Essentially], we reinvented ourselves and focused on our core competencies in MBB.

Lancaster-Lennox also revealed that NSN began to divert more of its revenue – approximately US$2 billion of its US$13.4 billion or 14.9% – towards R&D solely on MBB, now that its business was more targeted.

“If your business has a broad portfolio like the previous NSN, investment would be spread out, and this would mean that NSN would not be as innovative as can be. By narrowing our focus and targeting our R&D dollars on MBB and not anything else, we can innovate and lead in the space.”

As to the challenges facing NSN in the Asia South region, which includes Asean, Lancaster-Lennox said all vendors are facing a tough time in their respective businesses.

He noted that many operators in the region are at the point of deciding when and how they want to invest in technology and working out how they can generate as much revenue out of their existing investment in 2G and 3G (Second and Third Generation) networks.

“They're essentially thinking about what to do and not acting,” he said. “Some don't want to be early adopters, some do. Others are watching what another operator in one country does. This situation is compounded by the economic turndown in Europe and it’s been tough on every vendor.”

Cut-throat competition

When quizzed on how NSN would take on Chinese rivals Huawei and ZTE, two companies in the industry that are known to lower their bidding prices in order to seal deals from operators, Lancaster-Lennox said the company just has to make itself as efficient as possible so that it will be able to compete.

“We aren’t in a position [where we] could ridiculously drop prices. [So] we have to make sure that we can deliver in the business what we’ve won. To do this, we have to make our organisation as efficient as possible and at the same time compete by being competitive.”

He said that NSN’s value proposition was in the form of personnel and quality of hardware, software and services, which he described as a differentiating factor from other vendors.

“Every operator across the world goes through this journey as there are some very compelling stories out there of what potentially other vendors can supply. Eventually they think they should try it, and maybe they like it and maybe don’t.

“Sometimes the grass looks greener on the other side and until you cross the bridge, you’ll never know. Some operators would need to cross the bridge and see what it’s like before coming back.”

On whether NSN has a chance to win LTE (Long-Term Evolution) contracts here in Malaysia, Lancaster-Lennox said currently, it only supplies LTE gear to Celcom Axiata and no other operator, although it has other legacy, non-LTE Nokia Siemens Networks equipment with some of the operators in Malaysia.

“We are always talking to operators and we hope they like our offering, quality, hardware and software,” he said, adding that NSN’s value proposition would be to deliver all this at an attractive pricing.

So far, so good

Reengineering NSN back to the black According to Clement Teo (pic) of Forrester Research, NSN’s fortunes as a result of its restructuring two years ago seem to have worked.

In an email to DNA, the senior telco analyst noted that NSN has played to its traditional strengths in mobility and advanced broadband networks, and focused on leading players in developed markets that could provide a global showcase for its products.

“The next phase is in growing the market wins beyond South Korea, Japan, and the United States to other countries looking at Long Term Evolution (LTE) . They are already doing that in Singapore with Starhub and M1," he said.

Asked what were the positive effects of the 50% buyback of NSN from Siemens, Teo said the refocus within the organisation has been strategically successful, and that it is not distracted by casting too wide a net on its non-core products and services.

“The upside is that it could easily continue to partner with others in areas where it doesn't have the relevant suite of products,” he said. "It could also act with one accord without the distraction of two large shareholders putting pressure on it to quickly execute and show results.”

However, the analyst also said that NSN is still a long way from where it needs to be, but there are signs that its turnaround is strong.

“If it continues to execute to plan, it should be a must-have on any operator's short list for advanced mobile broadband deployment,” Teo said.

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