(NOK) Nokia and Siemens Joint Venture Network Wins Contract

Nokia Siemens Networks (NSN), a 50-50 joint venture between Nokia Corp. (NOK) and Siemens AG (SI) to provide telecom infrastructure solutions, recently won a contract to supply equipments for ongoing fiber-to-the-home (FTTH) network of Bulgarian Internet service provider EVO.bg. NSN will provide GPON solutions and supply customer premises equipments and the Optical Line Termination Unit. Using NSN platform, EVO will be able to expand its network capacity together with the enhancement of its high-speed broadband and IPTV offerings.

The east European countries became major growth driver for the fiber optic networks. A recent study conducted by research firm IDATE revealed that global subscriber base for FTTH and FTTB (fiber-to-the-building) will jump 227 million by the end of 2015 from 61 million by the end of 2010. We believe EVO contract will help NSN to solidify its footprint in the lucrative FTTH markets of east Europe, especially in Russia, Lithuania, Latvia and Estonia.

Recently, The Wall Street Journal reported that both Nokia and Siemens are at present trying to infuse more cash in their joint venture in order to revamp its businesses. For the last 6 months, NSN was looking for a third party investor in order to inject funds, thereby reducing the stake of both Nokia and Siemens. Early last month, The Financial Times reported that the two major U.S. private equity groups, Kohlberg Kravis Roberts and TPG, have backed out from their bidding for a significant stake in NSN.

The departure of these two private equity groups primarily resulted from disagreement between the firms and NSN over price and controlling stake of the venture. Nokia, however, announced that NSN is negotiating with several other investors. Despite being the second largest company in this field after LM Ericsson AB (ERIC), NSN always remains in sticky wicket once it was formed in 2007. Huawei and ZTE, the two Chinese telecom infrastructure manufacturers are fighting neck and neck with NSN to capture global market share. In the previous quarter, adjusted operating margin of NSN was 0.1% compared with 0.6% in the prior-year quarter.

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