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Will Nokia's Siemens Venture Buyout Spell Profits?

NEW YORK (TheStreet) -- I've held no punches expressing my frustrations with beleaguered phone giant Nokia (NOK - Get Report) . It's always been hard for me to grasp how a company can still be a global leader in a growing mobile devices market and still be grossly irrelevant at the same time.

I've taken issue with the company's management and its failure to seize exploitable ways to grow market share in developing countries. They've instead opted to go on a drastic cost-cutting exercise that yielded nothing in terms of shareholder value.

Complicating matters, management remains joined at the hip with Microsoft (MSFT - Get Report) insisting on mortgaging Nokia's future on a Windows platform that forever struggles against Apple's (AAPL - Get Report) iOS and Google's (GOOG) dominant Android operating system. Essentially, as much as I've wanted to like Nokia, the company has shown no interest in making it possible -- until now.

What probably shouldn't have come as a surprise certainly stunned investors this morning. On Monday, Nokia said that it will spend 1.7 billion euro ($2.22 billion), to buyout Siemens' 50% share of their joint network operations venture established in 2007 called NSN (Nokia Siemens Network). The deal is expected to close in the third quarter, upon which Nokia will own 100% of the business.

This is good news for Nokia, which continues to hemorrhage market share in the highly competitive devices market. But I do question how effective the new wholly owned network business (NSN) is now going to perform. Management has shown some flaws. After NSN posted revenue growth of 5% and 14% in the preceding two quarterly results, NSN suffered a surprising 5% drop in first-quarter sales (reported in April). Even more stunning was the 30% sequential decline.

On more than one occasion I raised this issue to investors -- asking how can there be any confidence in the stock with new struggles in NSN, which was the only business that was keeping Nokia's head above water? This means despite the decent strides that management had made towards profitability, Nokia had suddenly taken a step backwards.

I'm not discounting that Siemens was at fault here, either. The fact that Siemens had made it known that it wanted out of the partnership could have had an adverse affect on the first-quarter numbers. Given the uncertainty it's possible that customers were unwilling to commit. As I indicated above, until the first-quarter reversal NSN had turned itself into a worthwhile threat against the likes of Ericsson (ERIC - Get Report) and Huawei.

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