UPDATE: Nokia, Siemens Create No 3 Infrastructure Co"

STOCKHOLM -(Dow Jones)- Nokia, Monday said it will merge its infrastructure unit with the telecom infrastructure operations of Germany's Siemens in a deal that will create the world's third-largest telecoms infrastructure company.

Nokia's Networks Business Group and the carrier-related operations of Siemens will come together in a new company called Nokia Siemens Networks.

Nokia Siemens Networks will be dominated by Nokia with headquarters in Finland and the Chief Executive Simon Beresford-Wylie and Chairman Olli-Pekka Kallasvou both coming from the Nokia camp.

Based on 2005, the combined company had EUR15.8 billion in pro forma annual revenues and is expected to start operations with 60,000 employees.

The move follows the merger of competitors Alcatel of France and Lucent Technologies of the USA, announced in late March.

"This is the inevitable and wise result of the Alcatel and Lucent merger," a Paris-based analyst said.

As telecommunications companies on both sides of the Atlantic have begun consolidating, telecom equipment makers such as Nokia and Siemens have found their margins squeezed by powerful buyers such as AT&T and France Telecom. In response, telecoms equipment suppliers have begun consolidating themselves.

"We believe the price pressure seen recently will remain longer than previously anticipated as both Nokia/Siemens and Alcatel/Lucent will fight even harder to get contracts," said Stockholm-based research company Redeye in a note following Monday's announcement.

Redeye has a buy recommendation on Nokia.

The companies said estimated cost synergies of EUR1.5 billion annually by 2010 will come primarily from the elimination of overlapping functions, consolidation and better utilization of sales and marketing organizations, reduction of overhead costs, sourcing benefits, and greater efficiencies in research and development.

Nokia said a substantial portion of these synergies is expected to be realized in the first two years.

Siemens, which makes everything from power plants to washing machines, will be able to focus on its core business while giving its troubled telecom division a boost, analysts said.

Com, its telecom division, has been hit by pricing pressure for some time and some shareholders have called for it to be spun off.

Both Nokia and Siemens are likely to tout the merger as an opportunity to save money in research and development costs as they merge teams. However, the real benefits will be in higher sales volumes, said one London-based analyst.

At 0744 GMT, shares in Nokia were up EUR0.48, or 3.1%, at EUR16.14.

Siemens shares were up EUR4.67, or 7.3%, at EUR67.44.

"We believe the partnership with Siemens is the most effective way to build the scale and broad product portfolio necessary to compete globally and create value for shareholders," said Nokia Chief Executive Olli-Pekka Kallasvuo in a statement.

Based on current market share data, Nokia Siemens Networks will be the second largest company in mobile infrastructure, second in services, third in fixed infrastructure and the third largest in the overall telecommunications infrastructure market.

The planned combination of France's Alcatel with U.S. based Lucent Technologies will be larger as will Sweden's Ericsson, which recently acquired most of U.K. based Marconi's assets.

Company Web site: http://www.nokia.com

http://www.siemens.com

-By Magnus Hansson, Dow Jones Newswires;+46 8 545 130 91, magnus.hansson@dowjones.com and Nina Sovich, Dow Jones Newswires; +33 1 40 17 17 55; nina.sovich@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 19th June 2006