Nokia Siemens Network, the 50-50 joint venture between Nokia Corp. (NOK) and Siemens AG (SI) continues to suffer setbacks one after one. Severe economic recession has forced the telecom carriers to significantly reduce their capital expenditures and network upgrade plans throughout the world. This situation has resulted in a huge fall in the top-line of almost all the major telecom equipment manufacturers globally. However, we believe Nokia Siemens Network (NSN) is suffering the major part of it.

The company is the second largest telecom infrastructure developer of the world with 20% market share. Despite this, it has a very limited presence in the most lucrative North American markets. NSN first tried to enter this market in a big way by means of purchasing the lucrative CDMA assets of now bankrupt Nortel Network. But it lost the game to the world’s largest telecom infrastructure developer L.M. Ericsson AB (ERIC), which commands 32% of global market.

In November 2009, NSN again bids for Nortel’s Metro Ethernet Network assets but failed to the higher bids provided by Ciena Corp. (CIEN). Successive failure of NSN for two major network assets of Nortel has raised serious doubt regarding the company’s near-term business potential in the North American region.

Meanwhile NSN failed to clinch a deal with Telenor ASA (TELN) in Norway for the latter’s strategic network upgrade contract. Telenor will replace its entire mobile infrastructure in Norway with radio access equipment from Huawei Technologies Co. Ltd. Proximus, the mobile services wing of Belgian telecom operator Belgacom SA is the latest addition to NSN’s pathetic performance. Proximus plans to replace its entire radio access networks across GSM, UMTS, as well as LTE, with Huawei Technologies’ SingleRAN base stations. The base stations that will be replaced are from NSN.

Telecom infrastructure and related services market is likely drop by 5% -10% in 2009 compared to the previous year. Management of NSN has already predicted that the company will lose its global market share more than that was earlier estimated. In the third quarter of 2009, the company generated Euro 2.8 billion in revenues, down 21% year over year and also down 14% sequentially. Gross margin was 28.2%, compared to 30.8% in the same quarter of the previous year. Operating loss was Euro 1.2 billion compared to an operating loss of Euro 1 million in the prior-year quarter. In the same quarter, the company expensed Euro 908 million as goodwill impairment.

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