Nokia-Siemens to Offload BSS Unit

Zacks

Nokia Siemens Networks, a 50-50 joint venture between Nokia Corporation (NOK) and Siemens AG (SI) is in its final lap of negotiations to sell its Business Support System (:BSS) unit as the network giant plans to concentrate on mobile broadband business.    

Sweden’s Ericsson (ERIC), U.S.-based Amdocs Ltd. (DOX) and some private equity firms are interested in the BSS unit, which help telecom carriers to manage their charging and billing system. It is expected that Nokia-Siemens can earn upto $377 million by selling the business.

Global economic crisis has led to reduced carrier spending on expanding mobile infrastructure, thus affecting the business of telecom equipment providers. Intense competition has further aggravated the problem, forcing industry player like Nokia-Siemens to slash as much as 17,000 jobs by the end of next year. Likewise, rival Alcatel-Lucent SA (ALU) has also announced to slash 5000 jobs.      

Selling of the BSS unit is the third of its kind in the last four months after it sold its microwave transport business to DragonWave Inc. (DRWI) in June and the fixed line broadband access business to Adtran Inc. (ADTN) in May. We believe this is part of the company’s strategic decision to offload its non-core division to reduce its mounting loss and focus more on building high speed mobile network.          

The current Zacks Consensus Estimate for Nokia Corporation is pegged at a loss of 12 cents for the third quarter of 2012 with a growth rate estimate of (393.06%). For 2012, the Zacks Consensus Estimate stands at a loss of 38 cents with a growth rate of (199.54%) while for 2013, the Zacks Consensus Estimate stands at a loss of 1 cent with a growth rate of 96.67%.

Recommendation

We retain our long-term Neutral recommendation on Nokia Corp. Currently, it has a Zacks #3 Rank, implying a short-term Hold rating.

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