European telecommunication giants Nokia and Siemens on Monday announced merger of their network business and carrier-related operations -- a move aimed at consolidating their positions globally in the face of stiff competition from Chinese companies.
The merger will result in formation of a new company Nokia Siemens Networks, in which the Finnish and German rivals will hold 50 per cent stake each, a joint statement said.
In April, Alcatel and Lucent had merged their telecom equipment divisions. The consolidation is being driven by competition from Chinese manufacturers.
"Asian push is driving this consolidation. After the merger, the combined size of the new joint venture company will be of around the same size as Ericsson (the largest network player in the world) and Alcatel-Lucent," Robert Anderson, member of Nokia's executive board, said, adding that with consolidation Chinese companies would find it difficult to undercut.
Based on current market share data, it will be the second largest company in mobile infrastructure, second in services, third in fixed infrastructure, and the third largest in the overall telecommunications infrastructure market. Based on last year's figures, it will have revenues of more than 15 billion euros.
The merger between Nokia and Siemens is both culturally and functionally a good fit, Anderson said.
"We believe the partnership with Siemens is the most effective way to build the scale and broaden product portfolio necessary to compete globally...," said Nokia CEO Olli-Pekka Kallasvuo.
Simon Beresford-Wylie of Nokia will become chief executive officer of the joint venture and Siemens' Peter Schonhofer will be chief financial officer.
The estimated cost synergies of 1.5 billion euro annually by 2010 are expected to come primarily from the elimination of overlapping functions, consolidation and better utilization of sales and marketing organisations, reduction of overhead costs, sourcing benefits, and greater efficiencies in R&D, the release said.
A substantial portion of these synergies is expected to be realized in the first two years. These changes are expected to result in a headcount adjustment over the next four years in the range of 10 to 15 per cent from the initial combined base of approximately 60,000.
The transaction closing is expected to take place before January 1, 2007.