Nokia Oyj and Siemens AG agreed to combine their telecommunications network equipment units to close the gap with market leader Ericsson AB and reduce costs for research and development, personnel and purchasing.
The merger would create a company with annual sales of about 15.8 billion euros (US$19.9 billion) and will be equally owned by Espoo, Finland-based Nokia and Munich-based Siemens. The new company, called Nokia Siemens Networks, aims to cut as many as 9,000 of its 60,000 employees to save about 1.5 billion euros a year by 2010, the companies said in an e-mailed statement yesterday.
The new company would have a 21 percent of the US$65 billion wireless equipment market, while Sweden's Ericsson controls about 26 percent, according to Credit Suisse Group.
Siemens chief executive officer Klaus Kleinfeld has sold the German engineering company's handset business and is pulling out of unprofitable units after earnings slumped during his 16-month leadership.
"It's a good solution for Siemens and for the industry as a whole because it means less competition," said Michael Vieker, who manages about US$460 million at Muenchener Kapitalanlage GmbH in Munich, including Siemens shares. "There is too much capacity and we haven't seen any major consolidation so far because the players were too strong to go bankrupt."
The new entity will be run by Nokia executive Simon Beresford-Wylie in the role of CEO. Beresford-Wylie, a 48-year-old Australian, last year became the head of Nokia's network unit. The transaction is expected close before Jan. 1, next year, and is subject to regulatory approvals.
Nokia Siemens Networks will have its headquarters in Helsinki, be registered in the Netherlands and three of its five future divisions will be based in Munich.
Excluding restructuring charges, both Nokia and Siemens said that they expect the partnership to have a "positive" effect on their earnings per share by the end of next year.
Nokia's network division had sales of 6.56 billion euros last year, and an operating profit of 855 million euros, for an operating margin of 13 percent. The network unit accounts for about a fifth of Nokia's total sales.
Siemens's communications unit had sales of 13.1 billion euros in the fiscal year through September, and operating profit of 454 million euros, making it less profitable than Nokia's division.
Operating profit at the communications division slumped 75 percent in the quarter through March as costs rose and demand for networks declined, leading to an operating margin of 0.8 percent.
Makers of mobile-phone networks have in past months bought manufacturers of fixed-line telephone equipment as wireless and traditional calls are increasingly converging, meaning cellphones can be used on the move and then connect to a fixed network when at home or in the office.
Nokia and Siemens said the combination will allow them to offer customers products for so-called quadruple play, a combination of mobile and fixed telephone calling, Internet access and television services.
Siemens also said yesterday that it will "actively pursue the consolidation in the enterprise networks industry" and that the company "is in negotiations with several interested parties to execute this strategy."
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