Nokia Siemens set to return to growth

Growing demand for mobile data in the Middle East will help telecommunications company return to positive sales growth this year

The Finnish-German telecoms equipment maker Nokia Siemens Networks makes primary infrastructure used by Etisalat.

Growing demand for mobile data in the Middle East will help Nokia Siemens Networks (NSN), the telecommunications equipment maker, return to positive sales growth this year after a 15 per cent decline last year. NSN makes primary telecoms infrastructure that operators such as Etisalat, Zain and Saudi Telecom Company need to connect their cellular networks to subscribers' mobile phones.

Jorg Erlemeier, the head of NSN's Middle East and Africa region, expects regional sales to bounce back to single-digit growth after the recession last year. "There has been a lot of turmoil due to the financial crisis with operators spending less, it has impacted everybody," Mr Erlemeier said. "The investments have taken a dive. We believe the spend has been about 15 per cent less than 2008 ? but now we're seeing a trend upwards and the green shoots are coming back again."

The company is a joint venture between the Finnish handset maker Nokia and Siemens, a German engineering conglomerate, that was spun off in 2007. It is the second-largest telecoms equipment maker in the world behind Sweden's Ericsson and slightly ahead of China's Huawei. NSN returned to profitability in the quarter ending in March and reported operating profit of ?15 million (Dh69.2m), compared with a loss of ?122m during the same period last year.

Impacts from the global economic downturn led the company to report revenues at ?2.72 billion during the quarter, down 9 per cent from a year earlier. Gross margins rose to 28.8 per cent, from 23.5 per cent a year ago, following an aggressive cost-cutting regime initiated by the company's new chief executive, Rajeev Suri, during his appointment last September. NSN does not disclose its revenues across geographic territories. The key to NSN's growth in the regional market is largely due to the strong amount of spending Middle Eastern telecoms operators are making to keep up with the rise in demand for mobile networks usage, Mr Erlemeier said.

"In the Middle East, you have extremely mature mobile markets, especially when it comes to mobile penetration," he said. "The reason for that is that the [broadband] penetration is not very hard. Reaching homes is not a very easy task by any sense." For example, annual investment in the UAE telecoms sector has grown from Dh8.24bn to Dh9.54bn this year, figures from the Telecommunications Regulatory Authority showed.

"The UAE has been resilient when it comes to telecoms spend," Mr Erlemeier said. "It's not surprising given its mobile broadband roll-out and its fibre-to-the-home projects." By comparison, Africa remains a "frontier" region that telecoms equipment makers are eager to capitalise on, he said. With almost one third of the continent's population owning a mobile device, the need to provide suitable access to networks will create an opportunity that companies such as NSN and Huawei are keen to tap into.

"The Middle East is largely running on this path to meeting the mobile broadband challenge but in Africa in general they are running on a completely different path," said Mr Erlemeier. "Africa was never connected [to the internet] and now we have to see that as a starting point. With submarine cables now landing at the coasts, what you really need now is back-hauling capacity ? but it will still take quite some time to develop."

The two regions reflect a shift in the global telecoms equipment market where industry observers believe that intense price competition in developed economies will hold back margins and delay plans for additional capital expenditure. The market analyst Bernstein Research expects global spending on wireless equipment to grow slightly below 3 per cent this year, and increase at about 3 per cent a year through to 2013.