November 3, 2009 / 11:30 AM / 10 years ago

UPDATE 4-Nokia Siemens to cut 5,800 jobs, save $1.5 bln

* Seeks to save 500 mln euros in fixed costs by end-2011

* Wants “substantially” greater savings in procurements

* Some 7-9 pct of staff could be affected

* Revamps organisation to focus better on services

(Adds CEO, German union, fresh analyst quote, updates shares)

By Brett Young and Tarmo Virki

HELSINKI, Nov 3 (Reuters) - Struggling telecom equipment maker Nokia Siemens Networks [NSN.UL] aims to cut up to 5,800 jobs and save more than 1 billion euros ($1.48 billion) to stay competitive in the cut-throat market.

The company will revamp its operations hoping to benefit from its stronger position in offering services to operators.

Telecom gear makers have been hit hard by the recession, which crimped operator spending, and by tough competition from China’s Huawei [HWT.UL] and ZTE (0763.HK).

“To match the commercial flexibility demonstrated by Chinese vendors, NSN had to cut back its production, R&D and overhead costs,” said Pal Zarandy, partner at telecoms consultancy Rewheel.

Last month market leader Ericsson (ERICb.ST) reported third-quarter earnings below expectations and declined to forecast an upturn. [ID:nLM420454].

NSN, a joint venture of Nokia NOK1V.HE and Siemens (SIEGn.DE), said it aimed to cut 500 million euros in annual fixed costs by the end of 2011, putting up to 5,800 of the firm’s 64,000 staff at risk.

Workers in Germany and Finland protested against the plan.

“Shrinking more than the market is no honour for the top management,” said Georg Nassauer, the head of works council of Nokia Siemens in Munich.

“With this kind of restructuring we are not gaining any customer or order. It takes the power out of the company,” he said in a statement.

Nokia shares were little changed, off 0.9 percent at 8.64 euros at 1431 GMT.

MORE CASUALTIES AHEAD

Nokia Siemens said the programme, something analysts have expected given the persistently tough market conditions, could bring total charges of some 550 million euros in 2010-11.

The venture has reached some quarterly operating profits, but has mostly lost money to its owners — just like its rival Alcatel-Lucent ALUA.PA who has posted losses for 12 straight quarters. [ID:nLU541858]

“They could be making money again in 2011,” said SEB analyst Mats Nystrom.

“They have had catastrophic sales, but with cuts they could reach mid-single-digit margins from 2011. For higher margins, the market needs to turn to the better,” he said.

NSN also said it aimed for savings “substantially larger” than 500 million euros by lowering procurement costs to meet ongoing customer requirements for competitive pricing.

“The recent consolidation among operators and moves towards network-sharing agreements will place greater pressure on equipment manufacturers such as Nokia Siemens to secure new business,” said CCS Insight analyst Paolo Pescatore.

“We are bound to see further casualties in the network infrastructure space as operators rethink their business models and reconsider additional network investments,” he said.

Canada’s Nortel Networks, which filed for bankruptcy earlier this year, was the first major victim in the sector.

ANOTHER TOUGH BLOW

The cuts are the latest blow for the joint venture, which started operations in April 2007 and then unveiled a 1.5 billion euro cost-savings programme the following month — later bumped to two billion — including some 9,000 job cuts.

“Changes in the global economy and competitive environment make further cost reductions necessary,” Nokia Siemens said.

Last month, parent Nokia booked a 908 million euro charge for the third quarter due to NSN. It said NSN’s markets would fall by five percent in euro terms in 2009 versus 2008, and the venture would lose more market share than expected.

NSN said on Tuesday it would shrink its five business units to three as part of the shake-up, and would consider partnerships and acquisitions to boost growth.

The company made last summer an offer for Nortel’s CDMA and LTE businesses, but lost the auction to Ericsson.

Rajeev Suri, new chief executive of NSN, said the revamp was focusing mostly on providing more services to operators who are increasingly looking at outsourcing also in emerging markets.

“I think Latin America, Africa and Eastern Europe play an important role in managed services,” Suri said. So far only a few operators in these regions have started to outsource operations.

For a factbox on ailing telecom gear makers see [ID:nL3604734] (Additional reporting by Eva Lamppu in Helsinki and Jens Hack in Germany; Editing by David Cowell and Jon Loades-Carter) ($1 = 0.6769 euro)

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