IHS Global Insight Perspective | |
Significance | Discussions between Motorola and Nokia Siemens are reported as ongoing. This could lead to an alternative to the current public spin-off strategy being pursued by Motorola. |
Implications | Motorola has been seeking ways to restructure significantly but has been pursuing a public spin-off strategy, which is targeted to complete by the first quarter 2011. |
Outlook | The value mentioned for the bid is low. This could put an end to any deal being pursued in light of the alternative options. |
The Wall Street Journal reports that Nokia Siemens Networks and Motorola may be in talks regarding a potential buyout of Motorola's networking business. Citing "people familiar with the matter", the report states that if successful a deal could be struck within weeks. That could be worth US$1.1–1.3 billion, although the report notes that the network's unit took revenues of US$4.1 billion, down 20% year-on-year but increased unit profits to US$366 million. It is not wholly clear if the deal would cover the whole of the network's unit or reflect the focus in the report on the wireless infrastructure element of the segment.
The segment provides equipment and services to more than 135 GSM, CDMA, and iDEN networks globally. The segment also delivered WiMAX network equipment to 39 WiMAX networks throughout the world and was participating in 12 WiMAX trials globally at the end of 2009. The OFDM technology at the heart of WiMAX is also being used in Long Term Evolution (LTE), and Motorola is using that capability and advancing products that will support both frequency division duplex ("FDD") and time division duplex ("TDD") modes.
Outlook and Implications
Following severe underperformance at the handset unit, Motorola began the process of splitting up the business back in 2008. That had originally been intended as a spin-off or sale of the handset unit under the direction of new co-CEO Sanjay Jha, but given Motorola's continued falling market share and uncertainty over the Android/smartphone-centric recovery plan, compounded by the economic crisis and lack of access to capital through the middle of the credit crunch, that plan was delayed (see World: 29 January 2010: No Turnaround Yet for Motorola Handset Volume as Split Planned and World: 1 February 2010: Handset Sales Recover in Q4).
Subsequently Motorola also looked at taking bids for the sale of the Home and Networks Mobility unit but garnered little interest at the target level, with reported bids from private equity players, in conjunction with strategic partners including Huawei and Arris, of under US$4 billion thought to undervalue the business (see World: 12 November 2009: Motorola Examines Sale of Home and Networks Mobility Unit—Reports and World: 16 November 2009: Motorola Could Opt for Three-Way Split—Reports). Motorola then re-examined the possibilities and decided to pursue a split of its operations into consumer and enterprise-oriented businesses (see World: 15 January 2010: Motorola Reassesses Break-Up Strategy Amid Low Bids—Reports and World: 12 February 2010: Motorola Confirms Split Into Consumer Devices and Enterprise Segments).
Nokia would gain a significant boost in the United States, where the Home and Networks Mobility segment generated 49% of revenues—Nokia as a whole has always been week in the United States, generating just 4.2% of revenues there in 2009, despite the high value of the market. However, the process of splitting Motorola is already under way with the business set to become Motorola Mobility, including the Mobile Devices and Home businesses, and Motorola Solutions Inc., which includes the other businesses such as the Enterprise and Fixed and Wireless Networking businesses, by the first quarter of 2011 (see World: 2 July 2010: Motorola Files Separation Registration Form). The value attributed to the deal also seems significantly low given that prior deals for the whole of the Homes and Networks unit (revenues US$8.0 billion in 2009, and earnings of US$558 million) were not pursued further in the sub-US$4-billion region.