Struggling network infrastructure vendor Nokia Siemens Networks is planning to cut 17,000 jobs worldwide, as it aims to cut ¬1 billion (US$1.35 billion) from its annual costs by the end of 2013, the company said Wednesday.
About 23 percent of the company's 74,000 employees will be laid off. The 4 1/2-year-old joint venture between Nokia and Siemens has been struggling to compete with Swedish Ericsson and Chinese vendor Huawei. Parent company Nokia's ongoing problems have made Nokia Siemens' situation even more difficult.
The announcement was not a surprise to Mark Newman, chief research officer at market research company Informa Telecoms & Media. Earlier this year, the two parent companies gave up on finding an external investor, and injected ¬1 billion into the company, he said.
"We knew Nokia Siemens needed to make some decisions because sooner or later the cash injection is going to run out," said Newman.
Since its inception, Nokia Siemens has gone through different cycles. Between two and four years ago, the company was struggling to compete on price with Huawei and Ericsson, and became very aggressive on pricing with some success in winning new business, according to Newman.
"But the question was if that was a profitable business or not. Today, the company is still aggressive, but not to the extent it was a year ago," said Newman.
Nokia Siemens has said a vendor has to be first or second in a market to be successful.
"It is setting themselves a pretty tough challenge, because Huawei and Ericsson are the most successful vendors in the wireless infrastructure business. It is difficult to see who Nokia Siemens is going to dislodge," said Newman.
Going forward, the company will focus on mobile broadband and related services. Other areas like its wireline business will be sold or "managed for value," according to Nokia Siemens.
Besides savings from staff cuts, Nokia Siemens will also target areas such as real estate, information technology, product and service procurement costs, overall general and administrative expenses, and aim for a significant reduction of suppliers in order to further lower costs and improve quality, the company said.
"What we are seeing now is a genuine attempt to turn it into a single company with no overlapping functions," said Newman, who also hopes Nokia Siemens has a clear idea of where it is going to make cuts, so it doesn't turn into a drawn-out process that drags the company down.
Nokia Siemens will now begin talks with employee representatives in accordance with country-specific legal requirements.