Offshore outsourcing is prevalent in Telecom & Networking industry with equipment makers such as Cisco, Alcatel-Lucent and Nortel heavily outsourcing hardware and software design, development and manufacturing to remain competitive in a tough market that went through a protracted downturn. Now that the industry is showing a revival, it is a segment to watch in terms of new deals in the face of existing partner relationships already established.
This is a recent deal shows that this is still key R&D outsourcing market especially in the wireless, multimedia and storage spaces.
Dominique Raviart
Nokia Siemens Networks awards R&D outsourcing contract
TietoEnator will provide R&D services on IP multimedia subsystems (IMS) and on mobile intelligence networks (IN) for Nokia Siemens Networks. 230 staff will transfer. Financial terms of the contract were not disclosed.
Comment: This is excellent news for TietoEnator. The deal is key for TietoEnator as it expands its relationship with two of its three main telecom equipment manufacturing clients. In March 2006, TietoEnator had won a large R&D contract from Siemens Communication with a total contract value of €100 million. Now that the carrier part of Siemens Communication has merged with the Network Business Group of Nokia, investors feared that the new company would put its contracts with TietoEnator under scrutiny. This news therefore confirms that TietoEnator stands well in one of its major markets and in fact is able to expand its relationship. This one deal should be quite big – the number of transferred staff is similar to the March 2006 contract. Meanwhile, TietoEnator has won smaller contracts with Siemens in Italy around mobility and recently purchased an Ericsson R&D centre in Denmark and a centre from BenQ in Poland.
Competition around telecom equipment manufacturers has heated up with the arrival of Indian offshore vendors. TietoEnator has opted not to develop a strong Indian presence and has favoured a nearshore presence in the Baltic countries, Poland and Russia (through a partnership with MIRA). As a result of the Indians, prices are under pressure and cost savings are still very much on the agenda of the main clients. Nevertheless, Q1 2007 results suggest that TietoEnator’s nearshore strategy was vigorous enough to restore profitability. Indeed, the EBIT margin of the telecom and media business unit reached 9.2%, up from 6.8% the previous year. This is good news but we will need to see how it performs in the next three quarters in order to make a definite statement.
This article is taken from Ovum’s EuroView Daily Comment service. http://www.ovum.com
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