admin
NOKIA shares surged yesterday after it announced plans to buy out partner Siemans AG’s share of their valuable network equipment joint venture, betting on the technology to run 4G networks after it stumbled as a maker of smartphones. Loss-making Nokia gains full control of the profitable venture Nokia Siemens Networks (NSN) for $2.2 billion, a cheaper than-expected price, analysts said, although they also noted the acquisition would put pressure on Nokia’s balance sheet.
“With this transaction, Nokia buys itself a future, whatever happens in smartphones and feature phones,” Bernstein analyst Pierre Ferragu wrote in a note to clients.
However, the cost to the balance sheet is still a risk for a company that is burning through cash to keep its handset business running.
Nokia shares were up around 7.3 percent to 3.05 euros by 0915 GMT (5.15am EDT). JP Morgan raised its rating on the shares to overweight from underweight, lifting its target price to 3.6 euros from 2.0 euros.
Siemens shares were also more than 1.8 percent higher, with analysts saying it was good news for the German firm to finally execute a plan to exit a business that had weighed on it with high restructuring costs.
Morgan Stanley said the price Siemens would receive for its stake was at the low end of estimates, but it was “encouraged by the fact that this is a clean solution”.
“Despite the optically low price at this time, we believe this is the best possible outcome for Siemens shareholders.”
Nokia’s future has been cloudy since it fell behind rivals Apple Inc and Samsung Electronics Co Ltd in the smartphone race, making the decision to switch to Microsoft’s untried Windows software in 2011.
In contrast to Nokia’s phone business, NSN turned profitable in the second quarter of 2012 after slashing costs and as its focus on fourth-generation Long Term Evolution (LTE) networks began to pay off.
Nokia said it expected to close the transaction, subject to regulatory approval, during the third quarter of this year. — Reuters.
Online Reporter