Nokia Siemens Networks (NSN) has agreed to sell its Optical Networks business unit to Marlin Equity Partners. The deal will result in the unit being established as an independent company with the goal of becoming a leading provider in the optical market.
The Optical Networks unit is a supplier in the long-haul and ultra-long-haul segment of the optical market with technology in the emerging 100G optical transmission area and a tier one global customer base.
As a result of the transaction up to 1,900 employees – mainly in Germany, Portugal and China – from the optical business unit and related functions are expected to transfer to the new company in line with applicable local legal requirements. Related existing customer contracts are planned to be transferred. The transaction is expected to close in the first quarter of 2013.
The planned transaction is the latest move in the transformation of Nokia Siemens Networks into a mobile broadband specialist and will give both businesses the opportunity to concentrate investment and strategic focus on their core segments.
In December 2011, NSN unveiled a new strategy focusing on mobile broadband and services along with an extensive global restructuring program, which will see up to 17,000 jobs go. NSN’s target is to reduce its non-IFRS annualised operating expenses and production overheads by €1bn by the end of 2013, compared with the end of 2011. Part of the strategy included divesting itself of business areas no longer considered core to its new strategy.
So far, NSN has sold off its WiMAX assets to NewNet, its fixed-line Broadband Access business to ADTRAN and its microwave transport business to DragonWave.
Commenting on the sale, Rajeev Suri, chief executive officer at Nokia Siemens Networks, said: ‘During 2012 Nokia Siemens Networks has made tremendous progress in the transformation of our company to being the world’s mobile broadband specialist.
‘Our strategic focus on our core markets has enabled us to concentrate our energy and investment in areas such as LTE where we have strengthened our global leadership position. This transaction builds on that momentum and aims to provide a new home for the Optical Networks business with the focus, resources and strategic flexibility to address the opportunities in the optical market.’
Marlin Equity Partners, a Los Angeles California-based private investment firm with over USD $1 billion of capital under management, has formed a new company and intends to act as a consolidator, building an industry leader in the fragmented optical networking sector. ‘We are making a major commitment to this sector, and have significant capital under management that we intend to use as a catalyst for consolidation,’ said Nick Kaiser, a co-founder and partner at Marlin Equity Partners.
Pat DiPietro, Marlin Equity’s telecom sector operating partner added: ‘We plan to make necessary investments to deliver market-leading optical networking solutions and enhance the long-term value already provided to our global customer base.’ The new optical company will be headquartered in Munich, Germany with operations around the world and will be led by its existing management team with Herbert Merz nominated as chief executive officer.
Analyst comment from Ovum
Dana Cooperson, leader of Ovum’s Network Infrastructure Telecoms practice, observed: ‘When Nokia Siemens Networks announced its updated strategy about a year ago it said it was focusing its business on mobile broadband but needed to keep its optical group as a complement.
‘This struck Ovum as odd: its strongest position in optical (it’s ranked 10th globally in the $14.9bn market with just under $500m annual sales) is in the network core, where there is little connection with MBB. Furthermore, NSN’s optical business has been slipping for years with no clear plan to improve; it has not done the kind of fundamental R&D that its main competitors (e.g., Alcatel-Lucent, Ciena, Cisco Systems, Huawei Technologies) are doing.
‘The details of the transaction were not released, so it is difficult to gauge Marlin’s commitment to turning the optical business around. Competition in the market is keen; margins are under constant pressure. Competitors will take advantage of this ownership change and related confusion to gain any advantage in NSN’s accounts. Marlin’s goal may be to sell the optical business to another vendor, for example Juniper Networks.’
Cooperson continued: ‘Ovum’s 2020 research points to market evolution to a structure comprising two kinds of vendors: full-service vendors that provide a wide range of products and services to customer partners; and specialist vendors. Three years ago Nokia Siemens Networks looked like one of the five to sevent possible full-service contenders, but it since became obvious that specialism was their strongest course; as few as three vendors will make the leap to full-service.’
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