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Here are highlights from Wednesday's Analyst Blog:
Setback for Nokia-Siemens?
The proposed merger of AT&T (NYSE: T) and T-Mobile USA may become a huge setback for Nokia Siemens Networks (NSN), a 50-50 joint venture between Nokia Corp. (NYSE: NOK) and Siemens AG (NYSE: SI). A merger between the second and the fourth largest telecom operators in the U.S. will certainly affect the overall telecom equipment manufacturing industry. However, Nokia Siemens Network is likely to suffer the most.
North American market always remains the weakest spot for NSN. This was primarily attributable to the company's lack of innovative CDMA/WCDMA based infrastructure solutions. Although NSN generates only 6% of its total revenue from these markets, T-Mobile was its largest customer. The company is supplying equipments and services including standardization services for the HSPA+ mobile broadband network of T-Mobile.
A potential acquisition of T-Mobile by AT&T may eliminate NSN as a vendor for the merged entities. Therefore, AT&T can generate cost synergies from this acquisition. LM Ericsson AB (Nasdaq: ERIC) and Alcatel-Lucent (NYSE: ALU), are the two largest equipment vendor of AT&T, whereas NSN has a very limited presence to AT&T.
Alcatel-Lucent is also a major infrastructure supplier of T-Mobile. We believe AT&T may find it very hard to eliminate Ericsson or Alcatel-Lucent due to their existing strong association with the company.
At this juncture, the only way through which NSN can remain relevant to AT&T is by offering aggressive pricing that can beat its rivals. However, in doing so, the company may jeopardize its bottom line. In the previous quarter, adjusted operating profit margin of NSN was just 3.7% compared with 5.5% in the year-ago quarter. For the ensuing first quarter of 2011, NSN already estimated its adjusted profit margin in the range of -3% to a break-even. Under this scenario, we remain skeptical regarding NSN's flexibility to offer competitive bid prices.
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