Nokia Siemens Network Wins Major LTE Contract With Sweden's TeliaSonera

by: Zacks Investment Research

Nokia Siemens Network, the 50-50 joint venture between Nokia Corp. (NYSE:NOK) and Siemens AG (SI), recently won a major contract to supply LTE infrastructure gears to Swedish wireless operator TeliaSonera AB ’s (OTCPK:TLSNF) Gothenburg network. Last December, TeliaSonera became the first wireless service provider in the world to commercially offer the next-generation super-fast LTE network.

TeliaSonera will roll out a super fast LTE network in 25 municipalities in Sweden and 4 in Norway. The company selected LM Ericsson AB (NASDAQ:ERIC) and Nokia Siemens Network as its two primary LTE network equipment suppliers. This contract is very crucial for the future growth of Nokia Siemens Network. The company is the second largest telecom infrastructure developer in the world with a 21% market share. However, it is facing severe competition from the Chinese giant Huawei Technologies Co. Ltd.

Industry sources estimate that the number of LTE subscribers will grow from 100,000 in 2010 to 380 million in 2015. U.S. wireless giant Verizon Wireless (NYSE:VZ) and its Japanese counterpart NTT DoCoMo (NYSE:DCM) are on the verge of deploying LTE by early 2011. Nokia Siemens Network is already supplying LTE gears to NTT DoCoMo. We believe TeliaSonera contract will help Nokia Siemens Network to secure more LTE contracts.

After a pathetic 2009, we see some rays of hope for Nokia Siemens Network. Of late, management has taken several steps to improve the financials. The company is now bidding more competitively for contracts. We believe this could be the primary reason for the TeliaSonera contract win over Huawei Technologies.

Nokia Siemens Network expects to accelerate growth in 2010. Management estimates revenue in the range of $4.2 billion - $4.58 billion in the second quarter 2010. Operating margin in fiscal 2010 is likely to be 0% - 2% compared to a massive operating loss of around $2.43 billion in 2009 (including $1.35 billion of goodwill impairment).

Furthermore, Nokia Siemens Network has decided to cut 5,760 jobs as part of a major restructuring program. This will help the company reduce operating expenditures by around $732 million by the end of 2011.