Siemens and Nokia have put back the start date of their joint venture from January 2007 to some time in the first quarter of the year in order to make time for a compliance review.
The review will check whether Nokia Siemens Networks has strong enough compliance processes and procedures in place, and comes as a direct result of the fraud scandal that has subsumed Siemens in recent weeks.
A statement over the delay read: "Nokia Siemens Networks is now expected to start operations in the first quarter 2007, instead of January 2007 as previously expected. Closing will be subject to an agreement between Nokia and Siemens on the results and consequences of a Siemens compliance review. The review is expected to be performed during the first quarter 2007."
Nokia is concerned that the financial scandal involving slush funds, bribes and embezzlement current affecting Siemens does not cause the joint venture (joint venture) to fail. In a further development of that scandal, the German Sueddeutsche Zeitung newspaper has reported that six current and ex-Siemens employees have confessed to German prosecuting authorities that they managed slush funds, for bribery and fake consulting contracts, in Switzerland, Austria, and Liechtenstein.
There seems to be little doubt that the compliance review will produce positive results as Siemens is already bending over backwards to enhance its compliance credentials, as our report detailed. However, if new financial skeletons are revealed then Nokia could walk away without financial penalty, in the view of one Gartner analyst.
This is possible because of a special clause in the merger contract, according to a report in the Frankfurter Allgemeine Sonntagszeitung newspaper.
The effect of the delay will be that revenue from the joint venture will be lost. Jari Honko, an eQ Bank analyst, was quoted by STT, a Finnish news agency, as saying that the delay presented an opportunity for competitors, adding three months was a long time in the industry. The joint venture might be delayed up to six months but won't be scrapped because its too important to both Siemens and Nokia.
Dresdener Kleinwort analysts think that the joint venture could experience significant market share losses in wireless systems anyway due to platform elimination and customer overlap. The joint venture will produce the second largest provider of wireless infrastructure in the world, behind Ericcson, and the third largest fixed line supplier.