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Posted on August 27, 2012
By Brad Haynes
SAO PAULO (Reuters) – Nokia Siemens Networks NOKI.UL is opening an assembly line in Brazil with contract manufacturer Flextronics International Ltd (FLEX.O) to build next generation mobile phone networks, a senior executive said in an interview on Monday.
The plant should begin shipping fourth-generation (4G) wireless equipment at the start of October, as local carriers build out networks for the 2014 World Cup, said Ken Wirth, head of the Americas region for Nokia Siemens.
“What we’re looking to do is align our manufacturing capacity close to the markets that we’re selling in. So that lowers our transport costs, tariffs and any other things that pop up,” Wirth said, declining to comment on how much each partner had invested in the joint venture.
Brazil issued 4G broadcast licenses in June stipulating at least 60 percent Brazilian content in the hardware installed, a requirement challenged by the United States and the European Union at the World Trade Organization.
For Nokia Siemens, the demand from four Brazilian operators starting up their 4G networks will be enough to justify the local manufacturing capacity for the next 12 to 18 months, Wirth said, after which the Brazil plant could supply the region.
The company has already signed 4G contracts with a Brazilian carrier and a Chilean carrier that Wirth declined to name.
SMALL CELL HOPES
With local production already ramping up, Wirth said he sees Brazil’s new 4G networks as a chance for Nokia Siemens to grow its share of the Latin American market from about one-third. The region contributes 13 percent of the company’s revenue — more than North America — and is growing fast.
In Brazil alone, wireless carriers have earmarked some $1.5 billion in capital expenditures for next year, with about 30 percent dedicated to 4G technology. Operators have committed to minimum investments in their 4G networks to cover host cities for the Confederations Cup in 2013, a dress rehearsal for the World Cup.
By the time hordes of foreign fans descend on Brazil, Wirth said Nokia Siemens will have a quick fix for the sudden surge in demand, rolling out so-called small cell technology to offer concentrated coverage way below the cost of new antennas.
President Dilma Rousseff has already shown interest in the technology, stretching a 30-minute meeting with the head of cell chip maker Qualcomm (QCOM.O) to 90 minutes last week as she pressed for details about small cell equipment.
Wirth said small cell installations also offer Nokia Siemens a chance for a comeback in the United States, where it missed out on a rush of major 4G contracts.
“Small cell is the next wave. Since we haven’t gotten any of that business, if we get into small cell it’s all upside,” he said.
Nokia Siemens aims to start installing small cell units in the U.S. and Japan by the end of 2013, expecting carriers there to soon devote 70 percent of capital spending to the technology.
Wirth joined Nokia Siemens in April after more than a decade with Alcatel Lucent (ALUA.PA). He said his new employer is showing signs of renewed focus after a painful restructuring that called for the sale of non-core units and the elimination of about 17,000 jobs globally.
Around 12,000 of those positions have already been cut, Wirth said, helping operations to generate positive cash flow for three straight quarters.
The venture has previously struggled to make a profit since it was formed in 2007 by Nokia (NOK1V.HE) and Siemens (SIEGn.DE) in the face of aggressive pricing from industry leader Ericsson (ERICb.ST).
“What we’re driving towards is to be a viable and sustainable company that throws off cash,” Wirth said. “It gives you options to do other things, whether that’s a partnership with someone else, a merger, whatever other business form it takes.”
(Additional reporting by Tarmo Virki in Helsinki; Editing by Phil Berlowitz)