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Nokia has agreed to buy out Siemens‘ 50 percent stake in Nokia Siemens Networks for $2.2 billion. Nokia Siemens Networks will become a wholly owned subsidiary of Nokia, and the Siemens name will be “phased out,” the company said.
Finnish phone maker Nokia has had a rough couple of years. It was once the world’s top phone maker, but has struggled to remain competitive in the Apple and Android smartphone era. Nokia and German electronics conglomerate Siemens formed the joint venture in 2007 in an effort to compete against rival telecom equipment manufacturers like Ericsson and Huawei. However, this partnership was not particularly fruitful at first and the business struggled.
Nokia and Siemens entered into talks with private-equity buyers in 2011. After receiving no attractive offers, they decided to take matters into their own hands. Nokia Siemens Networks announced it was eliminating 17,000 jobs (or 22 percent of its workforce) to cut down on operating expenses and productions costs and that it would refocus the business on mobile and broadband services. These moves yielded positive results, and Nokia Siemens Networks posted a strong operating profit, cash generation, and financial position in May 2013.
This transaction will give Nokia a stronger position in the market. Nokia posted an operating loss of $196 million in April 2013. The now-profitable Nokia Siemens Networks will give Nokia some extra cash flow to boost its cellphone business, as well as offset losses from other areas. Nokia recently launched a new line of Lumia smartphones aimed at taking on Apple and Samsung, and despite overall losses, the sale of Lumia phones reached record numbers last quarter.
Asian rivals like Huawei and ZTE pose a significant threat to Western companies like Ericsson and Nokia, which is leading to consolidation across the industry. In April, Alcatel of France and U.S. company Lucent announced a merger. Bloomberg reported that Siemens has been seeking to exit wireless-gear manufacturing, and Nokia got the 50 percent stake for a good price. Nokia Siemens now claims about 20 percent of the market for the LTE wireless data network.
The deal is expected to close during the third quarter of this year. The operational headquarters will remain in Espoo, Finland, with a major regional hub in Munich, Germany.