At its 2011 Analyst Event in Boston, Nokia Siemens Networks (NSN) outlined more details of its recently announced strategy review. In our view, the new focus NSN is taking is right. NSN is focusing on growth segments of the infrastructure market and will generate large savings from operating expenses and production overheads. In addition to its focus on providing the most efficient mobile broadband network infrastructure, NSN also highlighted the importance of customer experience management (CEM) as an integral part of its strategy.

NSN also provided more guidance on which market segments it no longer considers core. These include wireline, microwave, Wimax, perfect voice, and business support systems. Some of these, microwave and Wimax, it already spun off. NSN estimates that the overall revenue impact of its non-core disposals will total 10% of its current revenue base. The impact on profit will be less than 10%, as these non-core disposals are low-margin operations.

NSN believes that telcos increasingly demand end-to-end solutions from their equipment vendor partners. No equipment vendors can credibly deliver such end-to-end solutions on their own. Hence, NSN is positioning itself as an ecosystems manager for end-to-end solutions. As part of its innovation drive, NSN increasingly focuses on devising concepts for solutions rather than simply focusing on product upgrades. For instance, Liquid Net is a concept for network infrastructure design that supports a more efficient usage of underutilized infrastructure capacity based on a range of NSN products. Similarly, NSN places great emphasis on its CEM solution, which helps telcos to transform their services offerings by enhancing network-related features that affect customer experience and satisfaction.

Thanks to its new strategy, NSN has a more focused position in the network equipment market. Moreover, its decision to embrace multivendor support allows NSN to differentiate itself better from its competition like Ericsson, which arguably looks less independent, as far as OSS and BSS offerings are concerned, due to its acquisition of Telcordia. NSN's multivendor support could also turn into an advantage when dealing with Huawei, which is not yet credibly providing full third-party vendor support. Still, we see the risk that NSN will clash with IT services providers such as IBM or HP over managed services offerings in the network space. We would advise NSN to "negotiate" clear demarcation lines for their operative fields. Such negotiations with IT services firms would also pave the way for partnership opportunities similar to the one NSN maintains with Juniper regarding mobile backhaul infrastructure.

The important geographies for NSN in the medium-term future will be North America, South Korea, and Japan, all of which have very high smartphone penetration rates — and which for historic and/or political reasons are challenging markets for NSN's key competitor, Huawei. Africa and the Middle East are turnaround regions on NSN’s radar screen, arguably markets where NSN has lost out vis-à-vis Huawei in terms of better exploiting the opportunities in recent years.

NSN is moving toward full independence from parents Nokia and Siemens. Central to this endeavour is its focus on margin and cash-flow improvements. NSN remains committed to strip out €500 million from its cost base by 2012. It remains absolutely imperative for NSN to achieve this goal, as it is unlikely that it will receive more "parental cash handouts," in addition to the €1bn it received this year. In our view, an IPO looks like the most likely scenario for NSN — assuming that it will reach positive cash-flow territory and that the financial markets open up again.

What we felt was missing during the event was a more detailed vision that NSN is pursuing. What is NSN's view of the market and the challenges and opportunities its customer base is facing? How is NSN positioning itself to address these issues? NSN needs to better communicate how it plans to address the demand of its customers' customers. A main challenge for NSN going forward is to sell network infrastructure concepts. NSN needs to target heads of strategy, CMOs, and CEOs in its marketing messaging. If NSN fails in messaging, its customers might miss what attractive offerings NSN has on offer. And NSN in turn would struggle to meet its margin targets — with dire consequences.