Various models of Nokia and Siemens mobile phones in a shop in Kaiserslautern, Germany, yesterday.
HELSINKI: Nokia shares surged yesterday after it announced plans to buy out Siemens AG’s share of their network equipment joint venture, betting on the technology to run 4G networks as it struggles in the smartphones business.
Loss-making Nokia gains full control of the profitable venture Nokia Siemens Networks (NSN) for $2.2bn, a cheaper than-expected price, analysts said, though they also noted the acquisition would put pressure on Nokia’s balance sheet.
“With this transaction, Nokia buys itself a future, whatever happens in smartphones and feature phones,” Bernstein analyst Pierre Ferragu wrote in a note to clients.
However, the cash cost is still a risk for a company that is burning money to keep its handset business running.
Rating agency Fitch said the acquisition made strategic sense, but added that the visibility of Nokia’s mobile phone business was still very limited and that it was taken into consideration of Nokia’s BB- or junk rating.
Nokia’s stock was up around five percent, having earlier hit a five-month high, a rally fuelled in part by short covering. Nokia has 14.6 percent of its shares out on loan, making it one of Europe’s most heavily shorted stocks by hedge funds, which were caught off guard by news of the buyout and scrambled to close their negative bets on the stock, traders said.
Siemens shares were more than 2 percent higher, as the German firm prepared to get out of a business that analysts said had weighed on the stock due to high restructuring costs.
Morgan Stanley said the price Siemens would receive for its stake was at the low end of estimates, but it was “encouraged by the fact that this is a clean solution”.
“Despite the optically low price at this time, we believe this is the best possible outcome for Siemens shareholders.”
Nokia’s future has been cloudy since it fell behind rivals Apple Inc and Samsung Electronics Co Ltd in the smartphone race, making the decision to switch to Microsoft’s untried Windows software in 2011.
Nokia’s smartphones and mobile phones have reported declining sales since the first quarter of 2011. The devices and services unit posted an underlying loss of 703 million euros in 2012 down from a profit of 1.7 billion euros in 2011.
According to research company Gartner, Samsung was the number one smartphone maker in the first quarter, with 30.8 percent of the market ahead of Apple’s 18.2 percent. Nokia was a long way adrift, behind LG Electronics, Huawei and ZTE.
Reuters
