Nokia, Siemens to Merge Mobile Networks

— June 22, 2006

Nokia and Siemens AG have announced that they will combine their telecommunications network equipment units in a joint venture, a move to help them compete with market leader Ericsson AB.

The 50-50 venture, to be called Nokia Siemens Networks, will consist of Nokia's network business group and Siemens' carrier-related operations, creating cost savings of $1.9 billion by 2010, Nokia said.

The companies expect the venture to generate annual sales of $20 billion.

The deal was expected to close by the end of the year, pending regulatory approval, and both companies said that between 10 percent and 15 percent of staff positions, or about 9,000 jobs, would likely be cut over the next four years.

In Frankfurt , Siemens shares rose by nearly 8.7 percent before falling back to 67.78 euros ($85.34), up 7.9 percent. In Helsinki , Nokia was up 4.5 percent at 16.46 euros ($20.70) in late trading.

"The new company will and has to have an attitude of a challenger -- fiercely competitive with an unerring focus on the customer -- because at the end of the day, eventually, it is the customer who will decide," Nokia's new Chief Executive Olli-Pekka Kallasvuo said.

As the communications industry converges, he said, Nokia Siemens Networks would be well-positioned to help customers -- telecommunications carriers -- lower costs and increase revenue while managing the challenges of converging technology.

Increasingly, the providers of mobile services, such as T-Mobile or Vodafone or O2, are looking for the technology and equipment that will let them provide more content more quickly to subscribers.

Analysts have said there are an estimated 2.5 billion users of cell phones around the world, a figure that is expected to increase as handset prices fall and operators lower subscription prices.

The deal is the latest in a wave of consolidation that began last October when Stockholm-based Ericsson agreed to buy Marconi Corp.'s broadband Internet and telecommunications assets for 1.2 billion pounds. In April, Paris-based Alcatel launched a $13.4 billion stock swap to acquire Lucent Technologies Inc.

Analysts said the latest deal made sense.

"Nokia has had difficulties being real strong on the network side. Now they will have a better position and this will also help on the cell phone side," said David Larsson, an analyst with IT Research in Stockholm .

"Siemens is a company with major technical competence and with good connections to the computer side, and they have a very strong position on the European market. Ericsson's system business will have a tougher challenger now."

Klaus Kleinfeld, CEO of Munich-based Siemens, said the deal would position the new company to tackle Ericsson, which is the top maker and seller of the network equipment used by wireless providers to send phone calls, downloads and data to and from cell phones and other devices.

"This combination creates a leading industry player with immediate strength, excellent potential for growth and well-positioned to improve future profitability," he said, adding that Siemens' business networks unit will be operated separately.

Siemens said in a statement earlier that it would "actively pursue the consolidation" of the unit and was "in negotiations with several interested parties."

Simon Beresford-Wylie, chief of Nokia's network operations, will head the new company.

"We are right behind Ericsson and in a virtual tie with Alcatel," he told reporters in Frankfurt . "We have a presence in all geographic regions, developed and developing."

The new company will have some 60,000 employees. Its chief financial officer will be Peter Schoenhofer from Siemens. Its headquarters will be in the Finnish capital, Helsinki, but it also will have key offices in Munich.

Kallasvuo took over as CEO on June 1 from Jorma Ollila, who during 14 years at the helm turned Nokia into the world's largest mobile phone maker. Kallasvuo's appointment was widely seen as signaling continuity, but when he took over he hinted that Nokia would expand its divisions, in part through increasing corporate purchases.

Nokia, based in Espoo, just outside Helsinki, sells phones in 130 countries and employs 62,000 people. Siemens is Europe 's largest electronics and electrical engineering company, and employs more than 460,000 people.

Since Kleinfeld took over as Siemens CEO more than a year ago, he has pushed through acquisitions, cut thousands of jobs and sold a cell phone handset business to BenQ of Taiwan in a bid to restore earnings at the company, which makes everything from high-speed trains to lighting for airport runways.

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