Nokia is turning to the stronger-performing parts of its business to help bolster its struggling smartphone arm,as it offered Siemens 1.7 billion euros (USD 2.22 billion) for its half of the networks joint venture.
Finland’s Nokia Corp said today that the transaction will be completed during the third quarter this year,meaning that the company formed in 2007 Nokia Siemens Networks will become Nokia’s wholly owned subsidiary.
After an initial surge of nearly 8 per cent,Nokia’s share price closed up 3.5 per cent at 2.95 euros on the Helsinki Stock Exchange,while Siemens AG’ share price was up 2.4 per cent at 79.60 euros in Frankfurt.
Nokia Siemens Networks had been loss making for several years amid speculation and rumors that it was an acquisition target. Meanwhile,Nokia also began to struggle with its core production of cellphones,losing its dominant market position.
Recently,however,Nokia Siemens Networks has shown signs of improvement after restructuring and substantial job cuts,with a small first-quarter operating profit this year compared to a 1 billion euros loss in the same period in 2012.
Neil Mawston from Strategy Analytics near London said the planned acquisition was not “a huge surprise” and that Nokia was trying to offset some “volatility” in its cellphone unit with the purchase.
“Nokia is trying to get stability in the networks division so they can repair the handset division. It seems to be part of the overall strategy,” Mawston said. “The networks takeover is good in the short term because it brings some extra profits and counterbalances some of the challenges in the handset division.”
But,he cautioned that the long-term profitability of networks operations was “questionable because of the crowded nature” of the global networks industry.
Since Nokia lost its dominant position in cellphones,which peaked in 2008 with a with a global market share of 40 percent,rumors about takeover bids and splitting the company have been rife,accompanied by plunges in its market share and share price.
Mawston downplays rumors about splitting the company. “There has been some talk about Nokia’s split into two and become a dedicated network supplier and hive off its handset division,” Mawston said. “But given that handsets have such a good potential for growth,better than the networks unit,I think it would be unwise to sell off the handset division at this stage.”
Nokia is struggling,especially in the lucrative smartphone market,against Samsung,Apple’s iPhone and handsets that use Google’s Android software. But it is also being squeezed at the lower end against Asian manufacturers making cheaper handsets.