Nokia - Cash-rich Nokia seen shunning mega deals

Cash-rich Nokia seen shunning mega deals -analysts

HELSINKI, April 7 (Reuters) - Consolidation is changing the telecoms equipment sector and forcing the mobile networks arm of Nokia to review the firm's tradition of growing organically and through small acquisitions, analysts say.
The Finnish handset giant has about 12 billion euros ($15 billion) in cash and though it will return some to shareholders, it could make sizeable acquisitions, if it wants to.
But smaller deals seem more likely.
Nokia trails Swedish-based Ericsson in its share of the mobile network gear market and the tie-up of rivals Alcatel and Lucent has refocused attention on how the Finnish firm might increase growth.
With increased pressure to expand in new network technology, industry watchers have asked what the Finnish group might do to boost its infrastructure division, which contributes about a fifth of group revenues.
"If you are going to maintain a global service or global organisation, it means a whole lot of fixed costs. It means that you have got to have volume," said Jussi Hyoty, analyst at FIM Securities in Helsinki.
Company executives were unavailable to comment ahead of Nokia's first quarter results on April 20, but CEO-designate Olli-Pekka Kallasvuo said in February: "Nokia has to consider acquisitions and cooperation scenarios pragmatically ... in the future."
Most analysts do not expect Kallasvuo to be attracted to transformational takeovers like the Alcatel/Lucent deal once he takes over the chief executive's seat from Jorma Ollila in June.
They play down any prospect he will make a rival bid for Lucent or for Nortel . Both are seen as too big for Nokia's liking and having too many historical difficulties.

More likely is interest in parts of Siemens' communications business. The German firm has struggled to restructure the unit and some analysts expect it to sell it in pieces, which could be the right size for Nokia.
"Both Nokia and Ericsson are constantly looking at small, bolt-on acquisitions and most companies that are in good shape do that," said Per Lindberg, analyst at Dresdner Kleinwort Wasserstein.
"If you have a good, competitive offering and are satisfied with the developments in your organisation, then you don't make these mega-deals," Lindberg said.
"Alcatel and Lucent are two companies with a demonstrable inability to grow and to generate cash. Ericsson and Nokia have the opposite, proven track-record."
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Nokia's caution with big acquisitions dates back to a traumatic experience in the 1980s when it swooped on a clutch of TV manufacturers. They gave it scale but could not compete with Asian imports and Nokia later closed most of its TV manufacturing operations with losses of about 1.3 billion euros.
Since then Nokia has gone for relatively small deals, such as its acquisition late last year of Intellisync for $430 million to boost its corporate mobiles business.
A major area of interest for telecom operators and equipment makers alike is convergence, where mobile and fixed telephony systems meet. Nokia itself has forecast that the market for technology running blended mobile and fixed line networks over the Internet will grow by up to 10 times by 2010.
"At the moment Nokia Networks might not be best equipped to answer to that demand, and on paper it could make sense for it to acquire that kind of expertise," said Mandatum analyst Erkki Vesola.
Ericsson has already added fixed-line operations, having bought UK-based Marconi for $2.2 billion, and analysts have identified companies like ECI Telecom as potential targets for either the Swedish firm or Nokia.
Other equipment firms seen as manageable targets include Ciena Corp. and Sycamore Networks Inc.
Richard Windsor, analyst at Nomura in London, said Nokia had already taken steps to improve its networks business amid fierce competition, shifting some work to lower-cost areas.
"I think basically they are starting to be more present in emerging markets, they are suffering a little bit more from pricing pressure, and they arguably have had some scale difficulties with their business," he said.
"But long term I think they should be pretty much okay, they have a very strong number two position in WCDMA infrastructure and I don't see that changing in the immediate term." (Additional reporting by Lucas van Grinsven in Amsterdam)