Tidbits: Cuts at Nokia, Rumored Cuts at Avaya

Nokia

Nokia says it will shed about 10,000 employees globally by the end of 2013 in a bid to reduce costs and streamline operations.

The company will close research-and-development centers, including one in Burnaby, British Columbia, and another in Ulm, Germany. Nokia will maintain its R&D operation in Salo, Finland, but it will close its manufacturing plant there.

Meanwhile, in an updated outlook, Nokia reported that “competitive industry dynamics” in the second quarter would hurt its smartphone sales more than originally anticipated. The company does not expect a performance improvement in the third quarter, and that dour forecast caused analysts and markets to react adversely.

Selling its bling-phone Vertu business to Swedish private-equity group EQT will help generate some cash, but, Nokia will retain a 10-percent minority stake in Vertu. Nokia probably should have said a wholesale goodbye to its bygone symbol of imperial ostentation.

Nokia might be saying goodbye to other businesses, too.  We shall see about Nokia-Siemens Networks, which I believe neither of the eponymous parties wants to own and would eagerly sell if somebody offering more than a bag of beans and fast-food discount coupons would step forward.

There’s no question that Nokia is bidding farewell to three vice presidents. Stepping down are Mary McDowell (mobile phones), Jerri DeVard (marketing), and Niklas Savander (EVP markets).

But Nokia is buying, too, shelling out an undisclosed sum for imaging company Scalado, looking to leverage that company’s technology to enhance the mobile-imaging and visualization capabilities of its Nokia Lumia smartphones.

Avaya

Meanwhile, staff reductions are rumored to be in the works at increasingly beleaguered Avaya.  Sources says a “large-scale” jobs cut is possible, with news perhaps surfacing later today, just two weeks before the end of the company’s third quarter.

Avaya’s financial results for its last quarter, as well as its limited growth profile and substantial long-term debt, suggested that hard choices were inevitable.

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ONF Board Members Call OpenFlow Tune

The concept of software-defined networking (SDN) has generated considerable interest during the last several months.  Although SDNs can be realized in more than one way, the OpenFlow protocol seems to have drawn a critical mass of prospective customers (mainly cloud-service providers with vast data centers) and solicitous vendors.

If you aren’t up to speed with the basics of software-defined networking and OpenFlow, I suggest you visit the Open Networking Foundation (ONF) and OpenFlow websites to familiarize yourself the underlying ideas.  Others have written some excellent articles on the technology, its perceived value, and its potential implications.

In a recent piece he wrote originally for GigaOm, Kyle Forster of Big Switch Networks offers this concise definition:

Concisely Defined

“At its most basic level, OpenFlow is a protocol for server software (a “controller”) to send instructions to OpenFlow-enabled switches, where these instructions give direct control over how those switches forward traffic through the network.

I think of OpenFlow like an x86 instruction set for the network – it’s low-level, but it’s very powerful. Continuing that analogy, if you read the x86 instruction set for the first time, you might walk away thinking it could be useful if you need to build a fancy calculator, but using it to build Linux, Apache, Microsoft Word or World of Warcraft wouldn’t exactly be obvious. Ditto for OpenFlow. It isn’t the protocol that is interesting by itself, but rather all of the layers of software that are starting to emerge on top of it, similar to the emergence of operating systems, development environments, middleware and applications on top of x86.”

Increased Network Functionality, Lower Network Operating Costs

The Open Networking Foundation’s charter summarizes its objectives and the value proposition that advocates of SDN and OpenFlow believe they can deliver:

 “The Open Networking Foundation is a nonprofit organization dedicated to promoting a new approach to networking called Software-Defined Networking (SDN). SDN allows owners and operators of networks to control and manage their networks to best serve their users’ needs. ONF’s first priority is to develop and use the OpenFlow protocol. Through simplified hardware and network management, OpenFlow seeks to increase network functionality while lowering the cost associated with operating networks.”

That last part is the key to understanding the composition of ONF’s board of directors, which includes Deutsche Telecom, Facebook, Google, Microsoft, Verizon, and Yahoo. All of these companies are major cloud-service providers with multiple, sizable data centers. (Yes, Microsoft also is a cloud-technology purveyor, but what it has in common with the other board members is its status as a cloud-service provider that owns and runs data centers.)

Underneath the board of directors are member companies. Most of these are vendors seeking to serve the needs of the ONF board members and similar cloud-service providers that share their business objective: boosting network functionality while reducing the costs associated with network operations.

Who’s Who of Networking

Among the vendor members are a veritable who’s who of the networking industry: Cisco, HP, Juniper, Brocade, Dell/Force10, IBM, Huawei, Nokia Siemens Networks, Riverbed, Extreme, and others. Also members, not surprisingly, are virtualization vendors such as VMware and Citrix, as well as the aforementioned Microsoft. There’s a smattering of SDN/OpenFlow startups, too, such as Big Switch Networks and Nicira Networks.

Of course, membership does not necessarily entail avid participation. Some vendors, including Cisco, likley would not be thrilled at any near-term prospect of OpenFlow’s widespread market adoption. Cisco would be pleased to see the networking status quo persist for as long as possible, and its involvement in ONF probably is more that of vigilant observer than of fervent proponent. In fact, many vendors are taking a wait-and-see approach to OpenFlow. Some members, including Force10, are bearish and have suggested that the protocol is a long way from delivering the maturity and scalability that would satisfy enterprise customers.

Vendors Not In Charge

Still, the board members are steering the ONF ship, not the vendors. Regardless of when OpenFlow or something like it comes of age, the rise of software-defined networking seems inevitable. Servers and storage gear have been virtualized and have become more application-driven, but networks haven’t changed much in the last several years. They’re faster, yes, but they’re still provisioned in the traditional manner, configured rather than programmed. That takes time, consumes resources, and costs money.

Major cloud-service providers, such as those on the ONF board, want network infrastructure to become more elastic, flexible, and dynamic. Vendors will have to respond accordingly, whether with OpenFlow or with some other approach that delivers similar operational outcomes and business benefits.

I’ll be following these developments closely, watching to see how the business concerns of the cloud providers and the business interests of the networking-vendor community ultimately reconcile.

Set-Top Box Logic Doesn’t Hold

I’m not that close to the cable market — though, once upon a DOCSIS moon, I worked for a company that sold transceivers to cable-device vendors — so perhaps I am missing a nuance or subtlety that might have tempered the opinion I am about the express.

Still, I feel relatively confident asserting that Cisco’s acquisition of Scientific Atlanta ranks among the worst buys the networking giant has ever done.

Misstep Followed by Tumble

Yes, the acquisition of Pure Digital Technologies and its Flip video camcorders must rate at the top (or is that bottom?) of the charts. Whereas Cisco paid $6.9 billion for Scientific Atlanta and only $590 million in stock — plus about $15 million in retention-based compensation — for Pure Digital, the former is still lumbering along a wayward path while the latter has been shuttered outright. When an acquired company is shut down with prejudice, as opposed to sold to a third party, a little more than two years after the purchase was announced, well, you have to count it as a misstep — perhaps followed by a severe tumble down a long staircase.

That said, Scientific Atlanta also has fallen well short of the winning mark for Cisco, and its future as a going concern is murky. While Cisco yesterday announced that it has sold a Scientific Atlanta manufacturing facility in Juarez, Mexico, to Foxconn Technology Group, Cisco apparently will remain in the consumer-facing cable set-top business, at least for now.

Puzzling Decision

That’s a puzzler for at least a couple reasons. First, commercial prospects for the cable set-top box in developed markets are uncertain at best, as the devices increasingly are rendered less valuable — and potentially obsolete — by the proliferation of Internet-connected televisions and mobile devices such as smartphones and tablets, all of which detract from the consumer-controlling power of the cable box. In developing markets, moreover, other vendors, including a number of Chinese and Asian players, are getting more than their share of the cable set-top market in jurisdictions where it’s still a growing business.

Even Cisco itself has voiced ambivalence about the future of the set-top box.

Oh, there’s no question cable MSOs want to keep the boxes in subscribers’ homes for as long as possible. There’s also no doubt that vendors, such as Cisco, will try to adapt the boxes for new purposes and applications. Still, consumers ultimately will call the tune, and many MSOs seem to acknowledge that reality, looking to jack up the price of bandwidth to compensate for any loss of control as media-content gatekeepers.

Zeus Kerravala, an analyst with Yankee Group Research Inc., has put forth the following argument in favor of Cisco keeping Scientific Atlanta:

 “Everybody looks at set-top boxes and says Cisco should cut the set-top box. But that’s often part of a bigger sale to a cable company, with switches and routers. It would be detrimental to their relationships.”

Questioning the Logic

I question that line of reasoning. Several years ago, it might have had some merit, but circumstances have changed. I don’t think Cisco needs to be in the consumer-facing part of the cable business to succeed as a vendor of switches and routers to MSOs.

An appropriate analogy, though somewhat inverted, is to Nokia and its Nokia Siemens telecommunications-equipment joint venture. Once upon a time, Nokia realized value, through mutual reinforcement, in selling both networking gear and handsets to its carrier customers. Now, well, not so much. Ever since the advent of the iPhone, consumers rather than carriers drive handset selection. Tossing a bunch of handsets that nobody wants into a telecommunications-equipment deal isn’t going to seal the bargain.

Sell . . . Before It’s Too Late

I would argue that the same separation will occur, if it already hasn’t, in the cable world. Increasingly, as consumers resist set-top boxes and choose to consume their content through other devices, it won’t matter that Cisco can offer both network infrastructure and set-top boxes. The value propositions will have to stand on their own.

So, I will offer Cisco some admittedly unsolicited but free advice: Get out of the cable set-top box business. It’s more pain that it’s worth, it’s not your forte, and you need to focus your efforts and resources on bolstering other parts of your business.

Besides, Huawei might take the business off your hands for a pretty penny. You just have to persuade the US government to let them have it.

For Huawei, U.S. M&A Door Remains Closed

Huawei Technologies felt it would be different this time.

Back in 2008, Huawei was thwarted in its ambition to become a minority owner of 3Com, tagging along on an $2.2-billion acquisition bid by Bain Capital that ultimately was discouraged on national-security grounds by the Committee on Foreign Investment in the United States (CFIUS).

After that embarrassment, which caused a Huawei executive to term the American national-security concerns “bullshit” — if only because Huawei would have owned just 16.5 percent of 3Com if the Bain-led purchase had been approved — the Chinese network-gear company assumed a lower profile, licking its wounds and biding its time.

Better Luck This Time?

Huawei was strong in its home market, after all, and it was gaining momentum and customer patronage in Europe and in developing markets in Asia, Africa, and South America, too. It would have other opportunities to crack North America. Time was on its side.

In recent months, Huawei felt now was the time to step from the shadows again. The company believed circumstances had become more favorable, perhaps because of the worldwide economic downturn, perhaps because if felt that old doubts and reservations about its ties to the People’s Liberation Army (PLA) and China’s rulers had faded under a new presidential administration in the U.S.

Whatever the case, Huawei earlier this year got ready to take another high-profile plunge into M&A activity on American shores, this time without the cover of a private-equity partner. (One concern, which nobody uttered publicly back in 2008, was that Bain might have been acting as a temporary beard for Huawei, taking the majority share of 3Com up front only to sell it back to Huawei, which had a joint venture with 3Com called H3C, in increments. Was it true? We’ll probably never know.)

Lobbyists, Lawyers, and Investment Bankers

Just a few months back, according to sources quoted by Bloomberg, Huawei pulled out all the stops. It hired lobbyists, investment bank Morgan Stanley, and high-priced law firms such as such as Sullivan & Cromwell LLP and Skadden, Arps, Slate, Meagher & Flom LLP.

Even with all that well-connected hired help, and even though it outbid its rivals by a wide margin in two different acquisition forays, Huawei went home empty-handed. Again.

Indeed, as Bloomberg reported, Huawei outbid Nokia Siemens Networks (NSN) for Motorola’s telecommunications-networking unit and it offered more than Pace PLC put forward to close its purchase of 2Wire. In the case of the Motorola division, Huawei’s bid surpassed the one offered by NSN by more than $120 million.

In each case, the seller was concerned that a Huawei acquisition would be delayed or rejected on U.S. national-security concerns. As such, the sellers in both transactions sought to negotiate the simplest, surest deal rather than the one that offered the biggest payday. For its part, NSN got creative in negotiating an agreement with Motorola that indirectly boosted the value of its offer, allowing Motorola to argue that it had done its fiduciary duty in negotiating the best deal possible under the circumstances.

Motorola might even have gilded the lily by suing Huawei in the middle of July, alleging that the Chinese vendor had wrongfully obtained Motorola’s trade secrets relating to cellular-networking gear.

Back to the Stop Sign

Well, no matter how you cut it, Huawei has been rebuffed again. This time it had a coterie of well-heeled dealmakers in its corner, and it still was unable to overcome its own political radioactivity. Motorola and 2Wire, as well as their agents, were concerned that deals with Huawei might not be approved. Rather than take that risk, they went in a different direction.

What can Huawei do now? Short of an explicit announcement from the U.S. government that it will look favorably on Chinese network-equipment companies’ acquisitions of U.S. technology concerns — an unlikely scenario. to be sure — Huawei will remain at the same impasse that stopped it cold in 2008.

At NSN, Nokia and Siemens Still Grope for Exit

Let’s say two companies are involved in a joint venture that’s been an unhappy marriage. The relationship isn’t as toxic as the former partnership between Mel Gibson and Oksana Grigorieva, but it hasn’t been a day at the beach, either. Neither partner wants to remain in the business alliance; they’re both looking for a dignified exit.

With logic and reason as your guides, what would you expect their next moves to be?

Yes, one partner might approach the other, looking to sell its interest in full. It’s also possible that one company might sell its interest to an approved third party, offering a right of first refusal to its JV partner. It’s also conceivable that both partners would put the joint venture on the block, hiring an agent to discreet present it to private-equity shops and strategic buyers. They might even consider putting some lipstick on the pig and trying an IPO, hoping to benefit from auspicious timing and favorable lighting.

Okay, now throw logic and reason to the wind. What would you do now?

Maybe, as Nokia and Siemens have done at Nokia Siemens Networks (NSN), you’d compound the unhappy union by acquiring a floundering telecommunications-equipment business from a vendor eager to unload it. Misery loves company, after all, so why not plunge headlong into the pit of despair? If you put on your absurdist bifocals, the move just might make sense on a surreal existential level. But we’re talking business, not Dadaism.

Just when I think there’s nothing in this crazy industry that can surprise me, something does just that. I admit, I’ve been puzzling over why NSN would buy Motorola’s networks business, which retains some wireless-operator customers, especially in North America, but also carries hefty baggage in the form of a product portfolio predicated on technologies (a large portion of its 3G gear, and its WiMAX 4G offerings) that have gone out of fashion. NSN will pay $1.2 billion for the Motorola unit, and — other than some modest scale and a minor ostensible market-share gain — I don’t see how it derives much benefit from the transaction.

Squeezed from all angles, from traditional competitors Ericsson and Alcatel-Lucent and from hard-charging Huawei — when it’s not fighting an intellectual-property lawsuit launched by, of all vendors, Motorola — NSN isn’t a thriving business. As I have mentioned previously, its joint-venture partners have taken massive goodwill writedowns since forming the business back in 2007.

Digressing for a moment, I want to note that I am not a proponent of joint ventures. Many European companies seem favorably disposed to them, and I understand the underlying reasoning behind them: pool resources, share and mitigate risk, eliminate distraction to one’s core business. Unfortunately, they’re usually unworkable in practice. It’s hard enough getting people from the same company to agree on strategy and to execute successfully. When you have the political machinations inherent in a joint venture, well, the job becomes nearly impossible.

Getting back on track after that brief digressive detour, NSN is in a tough spot.

How tough became clear to me after I read an article in the Wall Street Journal yesterday. Neither Nokia nor Siemens wants to continue participating in the joint venture, but they can’t find a way out. It’s as if Jean-Paul Sartre has rewritten No Exit and staged it in a boardroom. Hell is having to deal with other people in a joint venture.

Rumor Mongers of Summer

It’s like being in a hall of mirrors this evening. But instead of being filled with mirrors, this hall echoes with furtive whispers about potential acquisitions involving networking-industry notables.

Some of these rumors are unadulterated disinformation, propagated for one reason or another by vested interests (of which, I can assure you, I am not one).

In fact, before I continue, allow me to make full disclosure (as opposed to full monty, which is another thing entirely) and issue an important disclaimer: I have no financial interest or investment position in any of the companies or rumors I am about to discuss. If you should be foolhardy enough to trade on uncorroborated information presented in this blog post, you should seek psychiatric and financial help forthwith.

I will tolerate a lot of nonsense around here, but I will not countenance anybody blaming me for the loss of hard-earned money on the stock market. Buyer beware — and a little paranoia probably doesn’t hurt.

Okay, with those formalities out of the way, let’s get started on the sudden wave of madness that overtook the Intertubes beginning this afternoon. The rumors have been rife, coming from all manner of cranks, dealers, freaks, and schemers. One of these rumors might even prove to be true, but don’t count on it.

At this moment, one can hear chatter of Dell interest in Brocade; of IBM interest in Juniper; of a technology integration involving F5 and Juniper that might result in something more; of HP acquiring Fortinet; of Arris talking with suitors; and of Huawei, not Nokia Siemens Networks (NSN), being the company Motorola is trying to interest in its telecommunications-equipment business.

Meanwhile, a few crazies even think Cisco is kicking RIM’s tires. In my view, Microsoft — once it shakes off the cold sweats and horrific flashbacks associated with its gruesome Kin debacle — is more likely to troop to Waterloo with checkbook in hand.

It’s the middle of summer, but the industry natives are restless for hot-and-heavy investment-banker action. The investment bankers are ready to put on a show, too. The question is, will vendors pull the trigger on a deal or deals?

We can only wait, watch, and listen.

Components Shortages Affecting Vendors Worldwide

At the moment, components shortages seem to be pervasive in the technology industry. Vendors large and small, throughout most of the world, have been affected by them to greater or lesser degrees.

The problem appears to be with us for a while. To be best of my knowledge — and I will concede at the outset that my research hasn’t been definitive — vendors everywhere in the world are having difficulty sourcing adequate numbers of many types of components. The only exception is China, where vendors in telecommunications, cleantech, and other fields have not reported that same component-sourcing difficulties that have hobbled their counterparts in Europe, North America, and other parts of Asia.

That doesn’t necessarily mean that Chinese companies aren’t affected by components shortages. All it means is that they haven’t reported them, at least in the English-speaking media I’ve perused. Still, it’s a development that bears watching. In that China does not ascribe to the tenets of unfettered capitalism, it sometimes operates according to a unique set of rules.

Today’s component shortages span various semiconductor types, including but not limited to DSPs, FETs, diodes, and amplifiers. Vendors of solar inverters, particularly those based in Europe, also have been affected.

Meanwhile, Reuters reports that a shortage of basic electrical components could last into the second half of 2011, limiting the ability of telecommunications-equipment manufacturers to respond to improving market demand.

Reuters reports that memory chips and other fundamental components such as resistors and capacitors are in short supply after their makers slashed output, fired staff, put equipment purchases on hold or went out of business during the recession.

The shortages already have been blamed for weaker-than-expected results last quarter at telecommunications-equipement vendors Alcatel-Lucent and Ericsson, which really don’t need the added grief.

Alcatel-Lucent blamed components shortages for a large loss that it posted in its first fiscal quarter. Alcatel-Lucent’s CEO Ben Verwaayen said the said the shortages involved “everyday” low-cost components. He explained that most components come from China, where the manufacturing industry hasn’t been revamped since major cuts that followed the severe global downturn. 

We already know that the supply-chain issues that afflicted Cisco’s channel partners and customers were blamed partly on component shortages.

What’s more, Dell partly blamed shortages and higher costs of components, including memory, for its inability to maintain gross margins during its just-reported quarter.



And AU Optronics, Taiwan’s second-ranked LCD manufacturer and a supplier to Dell and Sony, reported that an LCD panel shortage is likely to last into the second half of this year.

By no means are those the only vendors affected. You only have read the recent 10-Qs or conference-call transcripts of companies involved in computer networking, telecommunications gear, personal computers, smartphones, displays, or cleantech hardware to understand that components shortages are nearly everywhere.

I just wonder — and I make no accusation in doing so — whether Chinese manufacturers are as affected by the shortages as are their competitors in other parts of the world.

Dell’Oro Forecasts Growth in Chinese Wireless-Infrastructure Spending in 2010

Primarily as a result of a decrease in 3G deployments in China, the worldwide market for wireless-network infrastructure declined 10 percent in the third quarter on a year-over-year basis, according to market researcher Dell’Oro.

Said Dell’Oro in a statement quoted by Reuters:

“While 3G spending in China is expected to stay depressed for the remainder of this year … heavy spending by China Unicom and China Telecom is expected to resume in 2010, and will be a prime contributor to both the WCDMA and CDMA markets.”

In this year’s third quarter, the market was worth $9 billion in revenue. As reported by FierceWireless, Ericsson’s share of the market remained steady, but Huawei gained share on Nokia Siemens Networks. Recently, Alcatel-Lucent won contracts worth approximately $1.7 billion to provide network upgrades, infrastructure, and services for China Mobile and China Telecom.

As in many other industries, telecommunications-equipment vendors seeking revenue growth will have to go to China to find it.

Ciena’s Tweaked Terms Deliver Victory Over Desperate NSN for Nortel’s MEN Assets

On the surface, it appears that the bankruptcy judge presiding over the kerfuffle between Nokia Siemens Networks (NSN) and Ciena for the privilege of owning Nortel’s Metropolitan Networks (MEN) assets made his decision purely on legal and procedural grounds.

Then again, maybe not.

As reported by Bloomberg, U.S. Bankruptcy Judge Kevin Gross who is overseeing the liquidation of Nortel’s U.S. assets, ruled yesterday that NSN’s $810 million after-the-buzzer offer should be rejected.

Ciena, which formally had submitted the top auction bid of $759 million in cash and convertible notes, argued successfully that it already had begun work on combining the two companies subsequent to the November 22 auction.

Nortel had sided with Ciena in the post-auction fracas, asserting that allowing a bid after the conclusion of the auction would disrupt the sale of the company’s remaining assets – not that there are many in the corporate garage left to sell.

Even though the $810-million bid from NSN was too late, it wasn’t too little. At face value, and even taking into account a $21-million compensatory breakup fee Nortel would have been obligated to fork over to Ciena, the NSN bid appeared to represent a better deal for Nortel creditors.

What’s interesting is that the Ciena offer appears to have been tweaked yesterday in a hallway outside the courtroom. Quoting from a Reuters article:

That set up Wednesday’s fight in court, with Nokia Siemens and some creditors arguing the auction should be reopened, in part because Ciena’s convertible securities were overvalued.

After roughly seven hours of argument, testimony and cross-examination, Nortel’s attorney said his team had a reached a deal in the hallway outside the court that would lead to the withdrawal of the last major objection.

Withdrawal of the objections made that a near-certainty later on Wednesday.

U.S. bankruptcy court in Delaware and a Canadian court cleared the deal after simultaneous hearings, Ciena and Nortel said in separate statements.

To clear the last objection, Ciena agreed to change the pricing on its convertible securities under certain conditions.

“This increases the value to the estate,” said Jennifer Feldsher, an attorney with Bracewell & Giuliani, which was representing creditor Matlinpatterson Global Investors. “We withdraw our objection.”

Ciena’s pricing change to the convertible securities included in its bid appeared to represent a modification of its formal offer. The move triggered the ire of an attorney representing Nokia Siemens Networks. Quoting again from the Reuters report:

Nokia Siemens’ attorney, Gregg Galardi, was critical of the deal saying it appeared to allow Ciena to change its bid and Nokia Siemens should be allowed to as well.

“It sounds like there is a material change to the bid,” Galardi of Skadden, Arps, Slate, Meagher & Flom said. “If that doesn’t reopen the auction, I don’t know what does. We stand by that $810 million bid.”

Was it a material change to the bid? If so, would it have been grounds to reopen the auction?

Don’t ask me. Those are legal questions, and I have difficulty distinguishing torts from tarts. However, I do welcome the learned opinions of the razor-sharp legal minds that frequent this blog occasionally.

That debate might be fun to have, but it would be entirely academic. NSN has conceded defeat, and Ciena is getting Nortel’s MEN business, even if the stock market and many of its shareholders wish otherwise.

As for NSN, the joint venture between Nokia and Siemens seems as confused and conflicted as ever, even if its new CEO is talking a big game about his plans for market-share gains and world domination.

Putting aside yesterday’s courthouse dustup, how could NSN fail to put its best collective foot forward during the actual auction process? How badly disorganized does the company have to be if it can’t be ready with its auction strategy before and during, you know, the actual auction?

I wrote before that the timing didn’t favor an NSN bid for Nortel’s MEN assets. Even though NSN scrambled in conjunction with private-equity concern One Equity Partners, which manages $8 billion in assets for JPMorgan Chase & Co., it is now evident that this was a last-minute, slapdash effort. It makes one wonder about the strategic coherence behind everything else that NSN is cobbling together.

Meanwhile, we read that Siemens today took an impairment charge of €1.634 billion for its continued involvement with NSN. Considering that Siemens AG has reduced its direct exposure to information technology, and that it has said IT is “not a great place to be,” one might question how long it will continue to take charges on a joint venture that seems strategically misaligned with its own big-picture objectives.

My supposition is that the recent emphasis on expanding and extending NSN into cleantech and renewable-energy solutions might have been, at least partly, a concession to Siemens, which has a large energy-related business and considerable expertise in that area. At its core, though, NSN remains a telecommunications concern, and that’s not where Siemens sees its future.

Seemingly flailing and swaggering at the same time, NSN lurches unsteadily into an uncertain future.

NSN Applies Full Court(s) Press in Late Bid for Nortel MEN Assets

As bankruptcy courts ponder how best to respond to the curveball that Nokia Siemens Networks threw at them in the form of an $810-million all-cash offer for insolvent Nortel’s Metropolitan Ethernet Networks (MEN) business, an article over at the Ottawa Citizen provides a good synopsis of where things stand.

As you might expect in any matter involving Nortel, there are elements of melodrama, tragedy, and farce.

Nokia Siemens Networks (NSN), for example, is claiming that it, and not Ciena, submitted the highest bid at auction. According to NSN, its final unconditional auction bid — offered in conjunction with One Equity Partners, a private-equity concern that manages $8 billion in assets for JPMorgan Chase & Co. — was for$770 million in cash.

NSN also said it tried to adjourn the auction to get expert advice on valuing the Ciena debt offer. According to the Ottawa Citizen, Nortel apparently refused the request for adjournment, putting NSN in what it called “an untenable position.”

Said Barry French, an NSN spokesman:

“We can confirm we have notified the representatives of Nortel’s creditors that we are willing to offer $810 million in cash for the optical networking and carrier ethernet assets of Nortel.”

“Along with our expert advisors, we continue to believe that the convertible notes offered by (Ciena) carry significant risk and should not be valued the same as cash.”

NSN is taking its case not only to the bankruptcy courts, but also to the court of opinion constituted by Nortel’s creditors.

Nokia Siemens Networks Files Late After-Auction Bid for Nortel’s MEN Assets

When somebody in business tells you it’s not about the money, you’d be wise to take those words with a mound of salt as high as Mount Vesuvius.

It’s nearly always about the money, my friends.

That’s why I think Nokia Siemens Networks (NSN) — the conflicted, divided, and potentially schizophrenic telecommunications-equipment joint venture — ultimately will be successful with its late, after-the-fact bid to acquire insolvent Nortel Networks’ Metropolitan Ethernet Networks (MEN) assets for $810 million in hard cash.

Admittedly, this late bid from NSN is a clear and obvious violation of the bankruptcy-auction process prescribed for the disposition of Nortel’s assets. NSN had a fair shot at Nortel’s MEN assets in the auction ring, and it came up short, losing to a $769-million cash-and-notes bid from Ciena.

According to the rules, Ciena won the auction fair and square. It should rightly take home the prize.

Hold on, though. Who said life, much less bankruptcy proceedings, was fair?

This transaction will come down to an exercise in mathematics. The bankruptcy court has rules to follow, but it also has Nortel creditors breathing down its neck. Those creditors want to squeeze maximum value from Nortel’s residual business assets.

The U.S. Bankruptcy Court for the District of Delaware was to decide today whether to approve the Ciena’s deal to acquire Nortel’s MEN assets. Pursuant to an agreement, Nortel would have to pay Ciena about $21 million in breakup fees and expense reimbursements if it chooses another buyer.

That’s why it all comes down to numbers. If I subtract $21 million from $810 million, I arrive at a sum of $789 million. The winning auction bid from Ciena, which comprises $530 million in cash and $239 million in senior convertible notes due in June 2017, tips the scales at $769 million.

Put yourself in the presumably shiny and eminently comfortable shoes of a Nortel creditor. Would you want $789 million in cash (after the $21 million deduction) or a bid of $769 million that includes only $530 million in cash? I think I know your answer.

The bankruptcy judge would need to be a paragon of probity and rectitude to deny NSN’s after-the-buzzer bid. He’d also need to have a thick skin, because the Nortel creditors won’t forget that they had a chance to get more money from a superior offer, even if it did come after the auction was over.

For Ciena, it’s not all bad news. It’s shareholders seem to rejoice every time the company’s bid for Nortel’s MEN assets is imperiled. Today was no exception, with Ciena shares rising on the NSN announcement.

Said UBS analyst Maynard Um, as quoted by the Wall Street Journal:

“We had earlier stated that we would view any price over $600 million as too high and as such we believe that the market is likely to take this negatively.”

The market might take a dim view, but Nortel’s creditors will respond favorably.

Nokia Siemens Networks to Focus on Market-Share Gains and Reduced Costs

Even though it struck out twice in auction-ring swings for pieces of insolvent Nortel Networks, joint-venture Nokia Siemens Networks (NSN) apparently has devised another plan to improve its fortunes as a vendor of telecommunications-networking gear.

For the past two years, NSN has focused primarily on profitability at the expense of market share. Now, under new CEO Rajeev Suri, the company will switch gears, prioritizing market share ahead of all else. Reuters reports that Suri told Finnish daily Helsingin Sanomat the following:

“In early 2008 we made a strategic decision to focus more on cash flow and profitability than on the market share. Now it’s time to give it up and to focus on the market share.”

What NSN was doing wasn’t working, so a change of strategy doesn’t seem misplaced. Losing competitive ground to Huawei, ZTE, and Ericsson in the wireless-equipment market, NSN had reached a point where different, if not entirely desperate, measures were required.

To gain market share, however, NSN will have to become a different company. Its CEO concedes that the joint venture must position itself as a “cost leader” if it is achieve market-share gains without losing money. The company also agrees that it must become more aggressive with its pricing strategies and marketing.

As with its computer-networking brethren, such as Cisco and HP (now including 3Com), NSN will be turning to lower-cost geographic jurisdictions whenever possible to reduce its operating costs connected to the design, development, and manufacture of its products. One example is the company’s recent decision to produce 3G equipment at its Oragadam facility near Chennai, India, by May 2010.

NSN also apparently is following the Cisco model of seeking “market adjacencies,” though I’m not sure the German-Finnish joint venture would use the same terminology. NSN said Monday that its telecommunications expertise gives it a mandate to offers solutions to partners and customers involved with renewable energy, intelligent power grids, and smart metering.

Said Juhani Hintikka, head of operations and business software at NSN:

“When you look at what is required to manage power grids, or to make full use of unpredictable renewable energy sources such as solar and wind, as well as bring greater transparency to and flexibility to billing, the synergies with the core of our existing telecoms business are obvious.”

As of January 2010, NSN will be restructured from five business units into three: Business Solutions, Network Systems, and Global Services. Efforts related to renewable energy and energy efficiency will be folded into Business Solutions.

The company, in the midst of shedding as many as 5,800 jobs by 2011 — presumably to become leaner and meaner in its quest for increased market share — says its primary business focus remains the telecommunications industry. Like Cisco and others, however, it is looking to enter related growth markets with its products, services, and technologies.