Nokia, Siemens merger to deflect China factor

Several analysts believe the recent Nokia and Siemens networks merger is a move to strengthen their position globally against increasingly low-cost Chinese suppliers.

It was announced this week that Nokia and Siemens will combine their communications service provider arms in a 16 billion-euro joint venture that will be called Nokia Siemens Networks.

Based on existing market share information, the groups say they will take second place globally in terms of mobile infrastructure and services, and third in overall telecoms infrastructure.

"As another telecommunications equipment mega consolidation play arrives... let us not forget that the spur was set in the side of the supplier segment by the emergence of the aggressively lower-cost Chinese suppliers," says Michael Howard, principal analyst and co-founder of Infonetics Research.

According to Richard Hurst, an analyst with BMI-TechKnowledge: "China is a big issue, because of its cost-effective technology, and this is attractive for cash-strapped African countries."

Richard Webb, directing analyst for wireless broadband and mobile at Infonetics Research, says Nokia and Siemens have broadband and fixed-mobile convergence at the forefront of their strategic thinking.

He says: "In our tracking of the radio access network equipment market, Nokia is definitely A-list, especially in the 3G segment. Combining this with the strength of Siemens in long haul and core and edge fixed networks will create a carrier network heavyweight that could be more than the sum of its parts."

Hurst adds: "This is a synergy for both Nokia and Siemens in Africa. Nokia already has strong networking in North African countries.

"European vendors are in a strong position, such as Ericsson and Alcatel. If more mergers were to occur, it would be to fit in with strategy and enhance their product, such as Nokia and Siemens, rather than to gain entrance to market."

Howard, however, believes the proof is in the pudding. "The final proof of a good merger is a profitable, still-standing business, five years from now."

In the end, he believes profitability and a lower cost of operations will rule.

Jeff Heynen, directing analyst for broadband and IPTV at Infonetics Research, believes the merger will give both parties "one throat to choke when the inevitable problems arise".

Nokia and Siemens SA could not comment on how this merger will affect local operations.