Mobile network equipment maker Nokia Siemens Networks (NSN) had announced a major overhaul of its business last year November.
The move was aimed at stopping its declining profits since the company was formed in 2007. The new strategy included focussing on mobile broadband, divesting unprofitable units and cutting costs. A year later the company has reported record profits in the third quarter.
Nokia Siemens’ underlying operating profit globally jumped to €323 million ($424 million) from €6 million a year ago, beating all analysts’ expectations.
Do the third quarter numbers give you confidence that the strategy that NSN announced is beginning to pay off?
Yes. I think we grew beyond expectations. In terms of gross profit or in terms of number of deals, we blew all expectations out of the water. This becomes even bigger when you start to compare with the rest of the industry as we have the highest operating profit in the quarter. The guidance is also very healthy for the next quarter. So it’s a massive endorsement of our strategy; operators like it, investors like it and even our competitors are beginning to say what we have been saying.
Your main rival Ericsson continues to be a one-stop shop solutions provider for operators whereas you have chosen to play in select areas like mobile broadband.
Our strategy is correct and it has been endorsed by the quarter numbers. We believe that one-stop shop days are over. The market worldwide for telecom equipment is flat. Therefore, focus on gross margins is important because in a flat market cash is very important.
You have just one quarter’s numbers to show so isn’t it too early to call?
Yes. It’s just one quarter so we need more data points. But we are convinced that we have the right strategy. As part of our transformation we had said mobile broadband, innovation and quality. Then we restructured. In mobile broadband, while our product portfolio has narrowed we had good growth year on year. We had won 67 LTE deals since then. As part of our innovation, we are building more efficient base stations that’s are smaller and more effective. Under restructuring, we took out cost out from all areas including headcounts. All of these are combining together. Yes. One quarter is not enough but we also have given good guidance for the next quarter.
How important is India in this scenario? The big deals are not coming from this market so how are you coping up with it?
India has been a flat market for the last two years and will remain flat till 2014. We are continuing to maintain the market share. We are running as efficiently as we can. Last two years, not many deals have happened. We believe that in 2014 when FD-LTE (4G) spectrum is sold, the Indian equipment market would see the next big growth. But India is not just a market for us; it is of strategic importance for Nokia Siemens. We have manufacturing here. We also have R&D partners in India.
So you are not seeing much opportunity in the current TD-LTE (a variant of 4G) rollouts?
Only Bharti and Aircel have picked up TD-LTE spectrum among the existing players. RIL has still not started services. It still has to mature. It’s not a major business for us this year.
What’s your take on the proposed manufacturing policy giving preference to locally made equipment?
We have been manufacturing in India for the last five years. We have invested millions of euros in our plant here. So anyone who has invested should not be negatively impacted. I am not worried but once the policy is announced we will know. It will be a pity if our investments are not acknowledged.
Operators are not making money and vendors are also not doing too well. Does this mean that NSN will walk away from low-margin deals?
It’s an equilibrium. India continues to be very tough but its characteristic has changed from growth to maturity. For operators, the importance of operation expenditure is higher. That’s where companies like NSN can help reduce costs by 20-30 per cent. We are focused on seeing that operators’ business case is viable. Whole discussion is now moving to total cost of ownership rather price of this base station or that box.