It's a paradox: The world is rushing to embrace mobile communications, but some of the biggest suppliers of telecommunications equipment are struggling to stay ahead.
For Nortel Networks Corp., survival is no longer even an issue. The company has agreed to sell its lucrative wireless business for $650-million (U.S.) to Nokia Siemens Networks, and is in late-stage negotiations to sell its corporate networks unit to another firm, most likely Avaya Inc. In the months ahead, a group of several dozen executives, lawyers and accountants will preside over a transition services group to dispose of Nortel's last asset. Creditors will be left to fight over the financial remains.
The giants still standing in the West include Telefon AB LM Ericsson, Alcatel-Lucent SA, Nokia Siemens and Cisco Systems, Inc. They're presented with huge opportunities from new wireless technologies. But they also face serious challenges, including declining sales from telecom carriers and businesses that are struggling in the recession, and aggressive competition from Chinese vendors, principally Huawei Technologies Co. and ZTE Corp., each of which have a reputation for undercutting competitors by as much as 50 per cent.
What are the key criteria for success in this environment? Two senior executives from two major players have different agendas, but they agree that future profitability requires a strong global presence and the ability to create unique products.
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Luca Maestri, chief financial officer of Nokia Siemens Networks, points to two distinguishing factors between success and failure in the industry today. The first involves having a global presence.
"Scale is huge, because the amount of R&D you need to put into this business is huge," he says. "Frankly, if you start scaling back on R&D, you start having a portfolio that doesn't meet all the needs of your customer, and then it becomes a spiral."
Nokia Siemens Networks, a joint venture of Finland's Nokia Corp. and Germany's Siemens AG, spends in excess of $2.8-billion (U.S.) on research and development each year. Its recent effort to grab Nortel's wireless assets is designed to establish a firm footing in the North American telecom market; until now, Nokia Siemens has garnered most of its sales in Europe and Asia.
The second factor is the ability to compete aggressively on either cost or product differentiation.
"It is quite obvious to us that we cannot compete on cost with the Chinese," Mr. Maestri says. "Where we believe we have a really strong story is on services."
Traditionally, equipment companies have supplied a mixture of hardware and software for communications networks. But recently, there has been a move to expand from simply building the network to priming it with intelligence, such as security technology or tools to mine customer data.
Fully 40 per cent of Nokia Siemens' revenue comes from services, such as integrating systems, hosting operations and designing networks. Broadly speaking, the opportunities lie with helping operators run their networks more efficiently and manage relationships with their customers more closely.
"That is a business that the Chinese today cannot replicate," Mr. Maestri says.
Beyond scale and differentiation, Nokia Siemens also wants to get a jump on other industry developments: Deployment of the next-generation wireless standard is the main one.
LTE, or long-term evolution, promises download speeds up to 10 times faster than the latest offerings. It's not simply that LTE is faster: The new industry standard is also much more efficient than so-called 3G (third generation) networks today.
Nokia Siemens expects that half the world's cellphone users will be using high-speed wireless data connections within five years, taxing the capacity of telecom operators around the globe. Phone companies are already seeing that growth in network traffic far exceeds any increase in revenue from wireless services, which means they will need to find new ways to make money and offset the expense of network upgrades. LTE will help operators provide mobile broadband at the speeds consumers demand, while cutting costs and keeping up profits, Mr. Maestri says.
Nokia Siemens has been developing its own LTE technology for several years and hopes to take a leap forward by acquiring Nortel's LTE unit, which includes several hundred specialized engineers in Ottawa.
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What investors should know
Cisco Systems Inc.
The manufacturer of networking equipment took its place among the world's most elite companies last month, replacing General Motors Corp. on the Dow Jones industrial average. Cisco has made a fortune for many investors on the Nasdaq exchange over the years, and has now joined Hewlett-Packard Co., Intel Corp., International Business Machines Corp. and Microsoft Corp. as one of the five tech stocks on the benchmark Dow Jones index of 30 stocks. Analysts are split on the company these days, with the stock down 20 per cent over the past year.
Nokia Corp.
The world's largest maker of cellphones has faced tumbling sales and profit as its rivals Apple Inc. and RIM surge ahead in the expanding smart phone market. Nokia saw profit plummet 90 per cent last quarter as sales fell 27 per cent. For the year, the Finnish company expects to sell 10 per cent fewer phones than in 2008. But CEO Olli-Pekka Kallasvuo has said the market for handsets is no longer in freefall and his company is gaining market share in smart phones. With shares off nearly 40 per cent over the past year, half the analysts following Nokia see a buying opportunity.
Siemens AG
The German conglomerate manufactures a broad variety of products, from trains and power plants to consumer electronics.
Although the recession has hammered the stock - it has dropped 37 per cent in the past 12 months - the company is hoping for a windfall from global stimulus spending. Siemens expects governments around the world to spend $623-billion (U.S.) on infrastructure projects in the next three years, of which it thinks it can secure $21-billion in new orders, largely a result of government projects geared to cutting energy consumption.
For Nortel Networks Corp., survival is no longer even an issue. The company has agreed to sell its lucrative wireless business for $650-million (U.S.) to Nokia Siemens Networks, and is in late-stage negotiations to sell its corporate networks unit to another firm, most likely Avaya Inc. In the months ahead, a group of several dozen executives, lawyers and accountants will preside over a transition services group to dispose of Nortel's last asset. Creditors will be left to fight over the financial remains.
The giants still standing in the West include Telefon AB LM Ericsson, Alcatel-Lucent SA, Nokia Siemens and Cisco Systems, Inc. They're presented with huge opportunities from new wireless technologies. But they also face serious challenges, including declining sales from telecom carriers and businesses that are struggling in the recession, and aggressive competition from Chinese vendors, principally Huawei Technologies Co. and ZTE Corp., each of which have a reputation for undercutting competitors by as much as 50 per cent.
What are the key criteria for success in this environment? Two senior executives from two major players have different agendas, but they agree that future profitability requires a strong global presence and the ability to create unique products.
*****
Luca Maestri, chief financial officer of Nokia Siemens Networks, points to two distinguishing factors between success and failure in the industry today. The first involves having a global presence.
"Scale is huge, because the amount of R&D you need to put into this business is huge," he says. "Frankly, if you start scaling back on R&D, you start having a portfolio that doesn't meet all the needs of your customer, and then it becomes a spiral."
Nokia Siemens Networks, a joint venture of Finland's Nokia Corp. and Germany's Siemens AG, spends in excess of $2.8-billion (U.S.) on research and development each year. Its recent effort to grab Nortel's wireless assets is designed to establish a firm footing in the North American telecom market; until now, Nokia Siemens has garnered most of its sales in Europe and Asia.
The second factor is the ability to compete aggressively on either cost or product differentiation.
"It is quite obvious to us that we cannot compete on cost with the Chinese," Mr. Maestri says. "Where we believe we have a really strong story is on services."
Traditionally, equipment companies have supplied a mixture of hardware and software for communications networks. But recently, there has been a move to expand from simply building the network to priming it with intelligence, such as security technology or tools to mine customer data.
Fully 40 per cent of Nokia Siemens' revenue comes from services, such as integrating systems, hosting operations and designing networks. Broadly speaking, the opportunities lie with helping operators run their networks more efficiently and manage relationships with their customers more closely.
"That is a business that the Chinese today cannot replicate," Mr. Maestri says.
Beyond scale and differentiation, Nokia Siemens also wants to get a jump on other industry developments: Deployment of the next-generation wireless standard is the main one.
LTE, or long-term evolution, promises download speeds up to 10 times faster than the latest offerings. It's not simply that LTE is faster: The new industry standard is also much more efficient than so-called 3G (third generation) networks today.
Nokia Siemens expects that half the world's cellphone users will be using high-speed wireless data connections within five years, taxing the capacity of telecom operators around the globe. Phone companies are already seeing that growth in network traffic far exceeds any increase in revenue from wireless services, which means they will need to find new ways to make money and offset the expense of network upgrades. LTE will help operators provide mobile broadband at the speeds consumers demand, while cutting costs and keeping up profits, Mr. Maestri says.
Nokia Siemens has been developing its own LTE technology for several years and hopes to take a leap forward by acquiring Nortel's LTE unit, which includes several hundred specialized engineers in Ottawa.
*****
What investors should know
Cisco Systems Inc.
The manufacturer of networking equipment took its place among the world's most elite companies last month, replacing General Motors Corp. on the Dow Jones industrial average. Cisco has made a fortune for many investors on the Nasdaq exchange over the years, and has now joined Hewlett-Packard Co., Intel Corp., International Business Machines Corp. and Microsoft Corp. as one of the five tech stocks on the benchmark Dow Jones index of 30 stocks. Analysts are split on the company these days, with the stock down 20 per cent over the past year.
Nokia Corp.
The world's largest maker of cellphones has faced tumbling sales and profit as its rivals Apple Inc. and RIM surge ahead in the expanding smart phone market. Nokia saw profit plummet 90 per cent last quarter as sales fell 27 per cent. For the year, the Finnish company expects to sell 10 per cent fewer phones than in 2008. But CEO Olli-Pekka Kallasvuo has said the market for handsets is no longer in freefall and his company is gaining market share in smart phones. With shares off nearly 40 per cent over the past year, half the analysts following Nokia see a buying opportunity.
Siemens AG
The German conglomerate manufactures a broad variety of products, from trains and power plants to consumer electronics.
Although the recession has hammered the stock - it has dropped 37 per cent in the past 12 months - the company is hoping for a windfall from global stimulus spending. Siemens expects governments around the world to spend $623-billion (U.S.) on infrastructure projects in the next three years, of which it thinks it can secure $21-billion in new orders, largely a result of government projects geared to cutting energy consumption.
Source : www.globeinvestor.com
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