With one prominent analyst casting a gloomy shadow over the future of optical networking, Nokia Siemens has decided to bail out of that market, selling its ON business to a private equity firm for an undisclosed amount.
The buyers, Marlin Equity Partners, will establish the business as an independent company. Nokia Siemens claims that jettisoning the underperfoming business will allow it to repurpose itself as a mobile broadband specialist. Terms of the deal were not disclosed.
“During 2012 Nokia Siemens Networks has made tremendous progress in the transformation of our company to being the world’s mobile broadband specialist,” Rajeev Suri, chief executive officer at Nokia Siemens Network, wrote in a statement. “Our strategic focus on our core markets has enabled us to concentrate our energy and investment in areas such as LTE where we have strengthened our global leadership position. This transaction builds on that momentum and aims to provide a new home for the Optical Networks business with the focus, resources and strategic flexibility to address the opportunities in the optical market.”
The new company will be headed by Herbert Merz, the current head of its optical networking business, and retain its management team. Up to 1,900 employees could join the new company, which will be headquartered in Munich.
Marlin’s play here may be to buy up underperforming ON companies, bring their assets together, and create a market-leading business. “We are making a major commitment to this sector, and have significant capital under management that we intend to use as a catalyst for consolidation,” Nick Kaiser, a co-founder and partner at Marlin Equity Partners, wrote in a statement.
If that’s the case, Marlin will have a number of companies to choose from. Ericsson, Fiberhome, Huawei and NEC were the only top ON vendors to announce both sequential and year-over-year revenue growth, analyst firm Ovum noted in a recent report, while Nokia Siemens, Tellabs and ZTE posted sequential and year-over-year revenue declines. Alcatel-Lucent’s quarterly revenues fell below $400 million for the first time and its rolling revenues fell below $2 billion, an all-time low; in a recent conference call, the company’s chief executive, Ben Verwaayen, talked about the “transformation” of the company into a innovator focused on R&D.
Global spending in the ON market during the quarter dropped 1 percent to $3.7 billion, versus a year ago. Spending climbed 14 percent in the Asia-Pacific region, but not enough to offset declines of 11 percent in North America, 8 percent in EMEA and 4 percent in South and Central America.
“Preliminary analysis of 3Q12 results offers little positive news,” Ron Kline, principal analyst of network infrastructure at Ovum, wrote in a statement. “The competitive environment is challenging at the moment. Many vendors are grateful just to see their business stay flat. It will be very difficult for the market to reach the 2% growth we have predicted for the year. Now is the time to position next-generation products with operators which will have no choice but to turn spending back on in 2013.”
He added: “With three uninspiring quarters of 2012 behind us, we are advising our clients that the global market will likely contract into the $14.5 to 15.0-billon range, a further retrenchment from our 2Q alert guidance.”