Nokia Siemens Takes Drastic Steps to Cut Costs

Struggling telecom equipment supplier Nokia Siemens Networks (NSN) said Tuesday it will slash annual costs by euro500 million ($740 million). To do so, it will condense its business units from five to three and lay off up to 6,000 workers. NSN also will stay on the alert for merger and acquisition opportunities.

The news comes about two weeks after NSN, a joint venture between Nokia Corp. and Siemens AG, announced the outsourcing of major company functions, including human resources and marketing, to save money. The changes also reflect that Nokia and Siemens have been unable to unload their stakes in the joint venture. Industry rumor has it each company has lost so much money in the deal that they can’t justify it much longer. Problem is, no one else apparently wants to buy NSN.

Now the company is turning to restructuring, which stems from NSN’s failure to combat the recession and intense competition from rivals such as Alcatel-Lucent and Ericsson. To that point, NSN watched its third-quarter earnings plunge 21 percent and its operating losses grow ten-fold.

Now the company is taking drastic steps to stanch the bleeding.

Rajeev Suri, CEO of NSN, said the venture will trim its five business units to three to target specific customers.

The first division, called Business Solutions, will offer back-office, charging, automation and other systems products. Jürgen Walter, who heads NSN’s Converged Core arm, will lead the Business Solutions organization.

The second unit, Network Systems, will concentrate on fixed and wireless network equipment. That will include base stations, optical transport systems and broadband access gear. Marc Rouanne, who’s in charge of NSN’s Radio Access division, will lead that group.

Finally, NSN is creating the Global Services branch, which will serve as an outsourcer for service providers. Global Services’ projects will include managing and implement networks, for example. Ashish Chowdhary, the top executive for NSN’s Services business, will assume the same role for Global Services.

None of the restructuring will come cheap, and yes, jobs are at risk. NSN said it will trim its workforce by 7-9 percent. Out of 64,000 employees, that comes to nearly 6,000 people. The company did not say which countries will feel the most impact, but it did note it will work with unions where necessary. The implication seems to be that the majority of job losses could come in regions without union backing.

Meanwhile, NSN said it will pursue acquisitions when the assets and prices make sense. Executives particularly want to “enhance the scale of existing product and service business lines … that deepen relationships with key customers,” NSN said in a press release.

“We see acquisitions and expanded partnering as important tools to help meet these needs in the fastest, most efficient way possible,” Mika Vehvilainen, COO of NSN, added in a prepared statement.

NSN expects its new structure to be in place as of Jan. 1.