NSN loses market share as services outshine infrastructure

Just as Nokia Siemens Networks (NYSE:NOK, NYSE:SI) is looking to expand the scope of its portfolio by buying Nortel Networks’ wireless assets, it has started losing market share in primary wireless infrastructure business.

While NSN is being battered by the worldwide recession like its competitors, Nokia’s chief executive officer, Olli-Pekka Kallasvuo, acknowledged today that NSN has become the victim of additional competitive pressures, losing wireless infrastructure market share to other vendors. Kallasvuo didn’t speculate on how much ground may have been given up, but Nokia expects the trend to hold steady throughout the year resulting in “moderate” decline in market in 2009, compared to 2008 in key infrastructure sales, offset in part by gains in its rapidly growing services business.

NSN’s piece of the global wireless equipment pie has held relatively steady at about 25% since the Siemens and Nokia formed the joint venture in 2007. According to the Dell’Oro Group, the newly minted NSN saw an uptick in market position in its first year, seeing its share rise to 25.1% from the combined 24.1% of Nokia Networks and Siemens Communications in 2006, but in 2008 NSN’s share dropped back down to 24.1%

This year, NSN saw its second-quarter revenues plummet by 21.3% to 3.2 billion Euros (US $4.5 billion) and its operating loss widen from 47 million Euros to 188 million, which helped contribute to parent Nokia’s own dramatic fall in profits last quarter. NSN saw sizable sales declines in every region of the world except North America, where it saw a 31.6% boost in revenues year over year, likely driven by its continued 3G rollout with T-Mobile (NYSE:DT) and relatively new 3G contract with Bell Canada and Telus. NSN added to its North American momentum this year with two IP multimedia subsystem (IMS) contracts for Time Warner Cable’s multi-access network and the new long-term evolution (LTE) network being built by Verizon Wireless (NYSE:VZ, NYSE:VOD). But, bringing in only 208 million Euros ($294 million), North America is still NSN’s smallest market and even a big boost in sales here couldn’t offset massive declines in its core Europe and Asia Pacific regions.

NSN saw sales declines across its infrastructure divisions, except in the radio access business, in which software sales driven by customers upgrading to high-speed packet access (HSPA) and evolved HSPA (or HSPA+) drove revenues, said Chief Financial Officer Rick Simonson. The services business, however, continued the trend of the last few quarters, as managed services and consulting contracts continued to pick up some of the slack left by its infrastructure divisions. NSN picked up some major services contracts in the second quarter, including network management deals with Telenor in Pakistan and DIGI Communications in Malaysia and a security services deal with MTS in Russia. NSN also announced today a 1.5-billion five-year managed services deal with Brazilian operator Oi.