FRANKFURT, Germany – Nokia Corp. (NOK) and Siemens AG (SI) said Monday they will combine their mobile-network operations to create a joint venture with annual revenue of about $20 billion, a move that will help them compete with market leader Ericsson AB.
The 50-50 joint venture, to be called Nokia Siemens Networks, will be comprised of Nokia's network business group and Siemens' carrier-related operations, creating estimated synergies of 1.5 billion euros ($1.9 billion) by 2010, Nokia said.
The joint venture was expected to be finalized by the end of the year, pending regulatory approval, and both companies said that between 10 percent and 15 percent of staff positions, or about 9,000 jobs, would likely be cut over the next four years.
Shares of Siemens surged 8.2 percent in Frankfurt to 67.97 euros ($85.98), while Nokia was up nearly 3 percent to 16.11 euros ($20.38) in Helsinki.
"The new company will and has to have an attitude of a challenger — fiercely competitive with an unerring focus on the customer — because at the end of the day, eventually, it is the customer who will decide," Nokia's new chief executive, Olli-Pekka Kallasvuo, said.
As the communications industry converges, he said, Nokia Siemens Networks would be well-positioned to help customers lower costs and increase revenue while managing the challenges of converging technology.
The deal is the latest in a wave of consolidation that began last October when Stockholm-based Ericsson agreed to buy Marconi Corp.'s broadband Internet and telecommunications assets for 1.2 billion pounds. In April, Paris-based Alcatel launched a $13.4 billion stock swap to acquire Lucent Technologies Inc (LU).
Analysts said the deal made good sense in terms of industry consolidation.
"Nokia has had difficulties being real strong on the network side. Now they will have a better position and this will also help on the cell phone side," said David Larsson, an analyst with IT Research in Stockholm.
"Siemens is a company with major technical competence and with good connections to the computer side, and they have a very strong position on the European market. Ericsson's system business will have a tougher challenger now."
Klaus Kleinfeld, CEO of Munich-based Siemens, said the deal would position the new company to tackle Ericsson, which is the top maker and seller of the network equipment used by wireless providers to send phone calls, downloads and data to and from cell phones and other devices.
"This combination creates a leading industry player with immediate strength, excellent potential for growth and well-positioned to improve future profitability," he said.
Simon Beresford-Wylie, chief of Nokia's network operations, will head the new company.
"We are right behind Ericsson and in a virtual tie with Alcatel," he told reporters in Frankfurt. "We have a presence in all geographic regions, developed and developing."
The new company will have some 60,000 employees. Its chief financial officer will be Peter Schoenhofer from Siemens. Its headquarters will be in the Finnish capital, Helsinki, but it also will have key offices in Munich.
There was wide speculation about changes in Nokia's strategy when Kallasvuo took over as CEO on June 1 from Jorma Ollila, who during 14 years at the helm turned Nokia into the world's largest mobile-phone maker.
Kallasvuo, who joined Nokia in 1982, worked closely with Ollila and his appointment was widely seen as signaling continuity in the company. When Kallasvuo took over, however, he hinted that Nokia would expand its divisions, in part through increasing corporate purchases.
Nokia, based in Espoo, just outside Helsinki, sells phones in 130 countries and employs 62,000 people. Siemens is Europe's largest electronics and electrical engineering company, and employs more than 460,000 people.
Since Kleinfeld took over as Siemens CEO more than a year ago, he has pushed through acquisitions, cut thousands of jobs and sold a cell-phone handset business to BenQ of Taiwan in a bid to restore earnings at the company, which makes everything from high-speed trains to lighting for airport runways.