NEW YORK/HELSINKI (Reuters) - Nokia NOK1V.HE and Siemens (SIEGn.DE) have made little progress in efforts to find a deep-pocketed partner for their ailing telecom gear venture after more than three months of talks.
The companies said in August they had started negotiations with private equity firms to sell a stake in Nokia Siemens Networks NSN.UL while together maintaining a majority, but the two differ on the possible price tag, sources familiar with the talks said.
The joint venture posted another loss last quarter and is struggling to reach profits in an industry where aggressive Chinese firms are often setting price levels.
Nokia and Siemens initially invited 4 or 5 potential private equity buyers into the process three months ago, but conversations are still considered to be exploratory, the sources said, adding that Bank of America (BAC.N) is advising Nokia and Morgan Stanley (MS.N) is advising Siemens. Both banks declined to comment.
“Normally when deals are in that phase for a couple of months, it means it is not particularly exciting,” said one source.
A Nokia spokesman declined to comment on the content of talks.
“As we have said, we remain open and willing to talk to people about NSN to bring in capital and other industrial assets,” the spokesman said.
Nokia and Siemens merged their telecom equipment businesses on a 50-50 ownership basis in 2007 in a six-year deal, hoping to soon reach double-digit profit margins.
But as NSN and Alcatel-Lucent ALUA.PA — formed in 2006 — focused on their integration, Chinese vendors Huawei HWT.UL and ZTE (0763.HK) aggressively entered the global market.
And bigger European rival Ericsson (ERICb.ST) started to fiercely compete for new deals, hoping to benefit from challenges faced by NSN and Alcatel-Lucent.
Putting pressure on all of the companies, operators have consolidated and cut spending and the number of suppliers amid a slowdown in many parts of the world and smaller growth in demand for telecoms services.
Although both parents have publicly stated they remain committed to the venture for the long haul, Siemens has been looking for an exit since Peter Loescher took over as group CEO in 2007, shortly after the venture started operations, sources have said.
Telecom gear has been much closer to Nokia’s core business over the years, but its focus has shifted increasingly to cellphones and it said in August it was ready to cut its stake.
Both parents have written down the value of their holdings in the venture, the equity of which Bernstein Research has valued at 7-8 billion euros.
Gear suppliers are betting on a market recovery next year — after two years of decline — as operators’ networks are increasingly congested due to surging mobile data traffic, but the uptick could be limited.
“In saturated markets like Europe, where fast mobile data network coverage is widespread and the Chinese vendors are present, capital spending will be mostly flat,” said Antonios Drossos, managing partner at telecoms consultancy Rewheel.
“In aggressive coverage driven markets, like the United States, where fast mobile data coverage is patchy today, LTE will certainly push capital expenditure higher,” Drossos said.
In the last quarter, NSN lifted its position in the booming U.S. market — agreeing to buy Motorola’s MOT.N network unit for $1.2 billion, and winning a deal worth more than $7 billion to build and run a next-generation LTE network for startup carrier LightSquared.
Like rivals Alcatel-Lucent and Ericsson, NSN returned to sales growth in the September quarter, boosted by demand uptick in Americas and the Asia-Pacific. But its underlying operating loss widened to 116 million euros, or 4 percent of its sales.
The venture is increasingly lifting its focus on services from network equipment business, and is battling for the largest managed services provider position with Ericsson.
Services, which increasingly includes operating carriers networks, is a growth business, and it has so far been mostly outside the reach of Chinese players, which compete on price.
In emerging markets, like in Africa, Chinese vendors have a very strong position, helped by their vast credit lines from state-backed banks. This enables them to give equipment to operators who are able to pay down the debt from cash flow.
Additional reporting by Jens Hack in Munich, Editing by Sitaraman Shankar