Team leader

Nokia Siemens Networks recently announced its financial results for its first full quarter as a combined entity, after the respective Finnish and German partners agreed to merge some 16 months back.

The European company endured a challenging period in 2Q07. Both net sales and margins were weak with the company conceding that the results signalled the need for decisive action.

Overall, Nokia Siemens Networks' sales revenues for the quarter were US$4, 767 million, with the Middle East and Africa figuring as fertile ground with the company drawing $512 million of sales revenues in the region.

Nokia Siemens Networks' second quarter operating profit was negative $1.8 billion, with an operating margin of -36.8%. The company's second quarter operating profit included a charge of $1.3 billion related to Nokia Siemens Networks' restructuring costs and other one-off charges.

The operating profit for the second quarter 2007, excluding one-off charges, was negative $500 million, with an operating margin of -10.5%. Operating profit in the second quarter 2007 also included $412 million of other acquisition related costs for intangible asset amortisation of $159 million and inventory value adjustments $252 million.

Nokia Siemens Networks officials were also at pains to point out that the inventory value adjustments only impacted the company in 2Q07.

Company officials also report that restructuring charges and other special items are expected to be significantly less during 3Q07 and 4Q07 than those incurred in the previous quarter.

As a result of these figures, the company announced that it no longer targeted a double-digit operating margin (excluding special items) by the end of the new company's first year of operations.

Net sales for the quarter were also impacted by a number of challenges related to the launch of their operations, including delayed purchases by customers to a greater extent than expected.

The company cited increased management focus on integration, and implementation of its previously announced compliance programme, as requiring a significant amount of management attention.

"It's very difficult to judge how your customers are going to react whenever you enter into a merger on this scale," concedes Nokia Siemens Networks CEO Simon Beresford-Wylie.

He also admits that a certain degree of confusion regarding Nokia Siemens' product portfolio in the marketplace had led to a delay in purchase orders from some of its customers, offering a window of opportunity for rival companies to gain ground.

Restructuring programmes at both Nokia Siemens Networks and Alcatel-Lucent have also led analysts to predict that rivals such as Ericsson might steal a march on the newly merged outfit.

"The speed with which market dynamics have evolved has definitely been a lot quicker than we had previously anticipated and I believe that's evident in our 2Q07 results which did lead to a certain level of disappointment," says Beresford-Wylie.

He concedes that price competition has been "fierce" in the global telco industry, with the emergence of low-cost vendors, such as China's ZTE and Huawei, placing increased commercial pressure on the company.