The phone major Nokia and Siemens, parent companies of Nokia Siemens Networks, will provide capital of EUR 1 billion to the second largest wireless equipment maker.
This will be a major relief for Nokia Siemens Networks which is struggling to retain its growth in few telecom markets including India.
The capital infusion is also happening at a time when Nokia Siemens Networks failed to attract a private fund to inject funds.
The fund infusion of EUR 1 billion is expected to further strengthen the company’s financial position and set the stage for strategic flexibility, productivity and innovation in areas such as mobile broadband and related services.
Nokia also faced troubles due to recent debt rating. Recently, Moody’s Investors Service had cut its debt rating to two steps above junk by, which cited a severe weakening” of the Finnish company’s market position.
Because of intense price pressure, Nokia Siemens Networks is generating neither material profits nor cash flows. Nokia Siemens may have trouble refinancing its ERU 2 billion revolving credit agreement before maturity in June 2012 if it doesn’t have help,” said Moody’s analyst Wolfgang Draack.
The capital infusion is important as the company’s Chinese competition – Huawei and ZTE – are aggressively pushing their LTE networks in countries where Nokia Siemens Networks used to dominate.
Nokia Siemens Networks is also in the process of bringing out new products in the mobile broadband space.
The company’s managed services business will also require funds to assist telecom operators’ roll outs.
Due to slowdown and poor marketing strategies, Nokia group’s net cash from operating activities was EUR ( ) 176 million in Q2 2011 as compared with EUR 944 million in Q2 2010.
Year-on-year, the decrease in net cash from operating activities in the second quarter 2011 was due to negative net working capital impacts mainly driven by lower net sales and an unfavorable geographic mix, as well as lower underlying profitability.
Net cash and other liquid assets decreased also due to cash outflow related to the acquisition of Motorola’s networks assets that was financed mainly by an increase in short-term interest bearing liabilities.
These factors were to some extent offset by higher cash inflows of IPR royalty income related to the second quarter 2011 and earlier periods, cash inflows related to foreign currency hedging activities and lower income taxes paid.
Nokia and Nokia Siemens Networks expect Nokia Siemens Networks net sales to be between EUR 3.2 billion and EUR 3.5 billion in the third quarter 2011.
Nokia and Nokia Siemens Networks continue to target Nokia Siemens Networks net sales to grow faster than the market in 2011.
During Q2 2011, Nokia Siemens Networks posted EUR 3.6 billion in revenue as compared with EUR 3 billion in Q2 2010, showing 20 percent growth.
The 20 percent year-on-year increase in Nokia Siemens Networks net sales in the second quarter 2011 was primarily driven by growth in both the product and services businesses in most regions, as well as the contribution from the recently acquired Motorola networks assets.
Nokia Siemens Networks is also planning to reduce its non-IFRS annualized operating expenses and production overheads by EUR 500 million by the end of 2011, compared to the end of 2009.
By Baburajan K
editor@telecomlead.com