Last month when Nokia Corp. (NYSE: NOK) agreed to acquire the other half of its joint venture, Nokia Siemens Networks (NSN), from Siemens A.G. (NYSE: SI) for $2.2 billion, we wondered what in the world the Finnish mobile phone maker could have been thinking. That is still a reasonable query.
A report today from Bloomberg News cites people familiar with the matter who say that NSN is considering a workforce reduction of 8,500, bringing its total employee count down from around 50,500 to 42,000. NSN already has chopped 20,000 workers in the past two years as the company faces increased competition from Ericsson (NASDAQ: ERIC) and Chinese firms Huawei Technologies and ZTE.
According to Bloomberg’s sources, NSN “is considering selling a 500 million-eurobond [about $664 million] to help fund a dividend payment to Nokia worth about 900 million euros [about $1.2 billion].” NSN is also looking at selling manufacturing facilities in Finland, China and India.
Nokia as activist investor? That’s what it looks like. The phone company appears to be on the brink of piecing out NSN for as much cash as Nokia can get. The odd thing is that NSN’s profit margin of nearly 12% is way better than Nokia’s margin of 3.4%. NSN contributed nearly half of Nokia’s consolidated revenues in the second quarter.
This might be a classic case of cutting off your nose to spite your face, but Nokia has few options left. Its debt is solidly junk and Microsoft Corp. (NASDAQ: MSFT) is unlikely to ride to the rescue again. Selling off the assets of NSN with the ultimate goal of shutting it down makes a perverse kind of sense. And really, what other choice does Nokia have?
Shares of Nokia are up 1.2% in premarket trading this morning, at $4.11 in a 52-week range of $2.27 to $4.90.