Friday, April 07, 2006

Cash-rich Nokia seen shunning mega deals reports that "consolidation is changing the telecoms equipment sector and forcing the mobile networks arm of Nokia to review the firm's tradition of growing organically and through small acquisitions." According to the article, the Nokia warchest is "about 12 billion euros ($15 billion) in cash and though it will return some to shareholders, it could make sizeable acquisitions, if it wants to."

Jussi Hyoty at FIM Securities said, "If you are going to maintain a global service or global organization, it means a whole lot of fixed costs. It means that you have got to have volume."

Per Lindberg at Dresdner Kleinwort Wasserstein said, "Both Nokia and Ericsson are constantly looking at small, bolt-on acquisitions and most companies that are in good shape do that. If you have a good, competitive offering and are satisfied with the developments in your organization, then you don't make these mega-deals. Alcatel and Lucent are two companies with a demonstrable inability to grow and to generate cash. Ericsson and Nokia have the opposite, proven track-record."

The article points out that "Nokia's caution with big acquisitions dates back to a traumatic experience in the 1980s when it swooped on a clutch of TV manufacturers. They gave it scale but could not compete with Asian imports and Nokia later closed most of its TV manufacturing operations with losses of about 1.3 billion euros." The company has since focused on small deals, "such as its acquisition late last year of Intellisync for $430 million to boost its corporate mobiles business."

One possible area of interest is fixed mobile convergence. Mandatum analyst Erkki Vesola said, "At the moment Nokia Networks might not be best equipped to answer to that demand, and on paper it could make sense for it to acquire that kind of expertise," said .

Richard Windsor at Nomura thought "Nokia had already taken steps to improve its networks business amid fierce competition, shifting some work to lower-cost areas." He said, "I think basically they are starting to be more present in emerging markets, they are suffering a little bit more from pricing pressure, and they arguably have had some scale difficulties with their business. But long term I think they should be pretty much okay, they have a very strong number two position in WCDMA infrastructure and I don't see that changing in the immediate term."