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Nokia-Siemens Offloads Optical Unit

Zacks Equity Research

Nokia Siemens Networks (:NSN) – a 50-50 joint venture between Nokia Corporation (NOK) and Siemens AG (SI) – is selling its optical network unit to Marlin Equity Partners, a private equity firm for an undisclosed amount. The divesture is part of the company’s broader plans to concentrate more on its core mobile broadband business.

Per the deal, 1900 employees of NSN, based in Germany, Portugal and China would be transferred to a new company established by Marlin Equity Partners in Munich. The private equity firm plans to become a market leader in the optical networking business through the acquisition of NSN’s unit. The deal is expected to close in the first quarter of 2013.

Selling the optical unit is the second cost cutting initiative taken by the company in the last 5 days. Prior to it, the company had announced its intention to close a plant in Bruchsal, Germany and eliminate 650 jobs in due course latest by 2013.

The leading telecom equipment manufacturer NSN has been going through a tough time for quite some time. Though the company has a strong GSM portfolio, it lacked severely on the CDMA front, which is the most dominant network used in the lucrative 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 a bid to overcome this difficult situation, 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.

So far this year, the company has trimmed about 13,000 of its work force and has made five divestments, which include selling some of its internet protocol television (IPTV) assets to Accenture plc. (ACN). NSN is also in the final lap of negotiations to sell its Business Support System unit to  Ericsson (ERIC), Amdocs Ltd. (DOX) and some private equity firms.

We believe offloading its non core assets will help the company focus solely on its wireless broadband business as telecom carriers continue to upgrade their network to support the massive demand for mobile data and video.

We retain our long-term Neutral recommendation on Nokia Corp. However, it holds a Zacks #2 Rank, implying a short-term Buy rating.

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