Nokia, once a leader in the mobile phone market, has struggled to compete with the likes of Apple and Samsung in the smartphone race.
Now it is hoping to get ahead in running broadband technology and 4G, the superfast mobile internet service. The Finnish phone maker plans to buy out partner Siemens’ 50% share in their joint venture, Nokia Siemens Networks (NSN), for €1.7bn (£1.5bn).
NSN, which was launched in 2007, focuses on telecoms equipment and is currently Nokia’s most profitable asset. The business was loss-making for years but has recently improved after a series of cost cutting measures which included axing around 23% of jobs. The company has also invested heavily in developing high-speed data, used to provide 4G for the likes of Brazilian mobile operator TIM.
‘Nokia Siemens Networks has established a clear leadership position in LTE [long term evolution, another name for 4G], which provides an attractive growth opportunity,’ Nokia chief executive Stephen Elop said.
Nokia and Siemens failed to sell the joint venture to private equity firms two years ago, so the deal is an unexpected turnaround in fortune. It is expected Nokia will pay Siemens a €1.2bn cash instalment in the third quarter. The remaining €500m will be paid a year after completion.
However, while it is seen as a good deal for Nokia, questions have been raised about the strength of Nokia’s balance sheet, which is already stretched. Nokia said its net cash had fallen from €4.5bn at the end of the first quarter to around €3.7bn-€4.2bn by the end of June. In January, Nokia scrapped its dividend for the first time in at least 143 years to boost liquidity.
Still, investors seem to be happy with the deal. Shares surged 9.7% when the markets opened in Helsinki. Does it mean that Nokia will retreat from its established consumer markets in favour of back-end network technology? We’ll have to wait and see.
Meanwhile, in the UK, Sainsbury’s has announced it is entering the mobile phone market for the first time and launching its own network service later this summer. The UK’s third-biggest supermarket has teamed up with Vodafone to launch the ‘Mobile by Sainsbury's’ network service.
It’s part of Sainsbury’s plan to enter new markets such as eBooks and MP3 downloads. However, Sainsbury’s is some way behind rival Tesco, which launched its own telecoms division a decade ago.