News Analysis: By selling its struggling network equipment business, Motorola improves its financial picture and gains the resources it needs to exploit its success with the Droid smartphone line.
The announcement by Nokia Siemens Networks that it will
buy Motorola's wireless network infrastructure business for $1.2 billion will
free the wireless product maker from its struggle to compete with larger
competitors, while also giving it the cash it needs to carry out its plans to split
the company into two independent and publicly traded companies
The deal, announced on July 19 in a joint press release,
is expected by both companies to close by the end of 2010. The deal has been in
the works for some time, and is expected to result in no layoffs as Nokia
Siemens will pick up 7,500 existing Motorola employees.
The move by Motorola to sells its wireless equipment
business makes sense. Until now, the company has been fighting an uphill battle
against Nokia Siemens and Huawei which are both much larger globally. The sale
will significantly improve Nokia Siemens position in the United States and Japan, while
allowing Motorola to put more money into its remaining two business areas,
Motorola Mobility which would make smartphones including the hot-selling Droid
X and a line of set-top boxes for televisions. The other unit, Motorola
Solutions, makes public service and business radio systems, where it is a
The deal also includes a cross licensing arrangement for
patents from both companies. Motorola will keep its iDEN business, which is
used by Sprint for push-to-talk communications. Until the sale, the networks
business has been part of the Mobility business.
The sale of the network equipment business will
accomplish a number of important things for Motorola. The first is that it will
give the company funding to expand its manufacturing capacity for devices such
as the Droid X, which has proven so popular that it has sold out at Verizon
Wireless stores. Devices such as the Droid series have made the Mobility unit
the most profitable at Motorola, according to a number of analysts in a report
provided to the Chicago Tribune by Oppenheimer & Company. However, the
inability to keep up with demand
for its hot-selling smartphones is clearly
cutting into that unit's performance.
The Motorola Solutions division is growing rapidly in
response to increased needs for public service wireless communications.
Motorola has been the dominant provider of radios for law enforcement in the United States
for decades, and the expansion of law enforcement and public service
into high-speed data promises even more growth. While Motorola
needs to wait for the deployment of LTE to field some of its promised
communications solutions, significant funding has entered this area of its
business in response to stimulus funding by the Obama administration, as well
as by Homeland Security funding for interoperable radios.
The primary growth in interoperable radios for law
enforcement and national security is currently waiting for a final
determination in auctions for the public safety bands that were recovered when
commercial television was moved to an all-digital format last year. Much of the
interoperable communications equipment will be similar to the digital equipment
that Motorola is already making for its law enforcement and public service
Nokia Siemens, meanwhile, will gain a foothold with two
of the four major U.S. carriers, Sprint and Verizon Wireless. This could be a
significant factor in coming months as Nokia Siemens is already a major
supplier of network equipment and services to Deutsche Telekom, parent company
of T-Mobile USA, and supplies much of the network infrastructure for European
divisions of T-Mobile. A merger between Sprint and T-Mobile would find both
companies sharing an equipment supplier, potentially easing the transition for
sharing of facilities and a possible move of Sprint back to GSM.
Overall, Nokia Siemens stands to raise its profile in a
number of markets and with dozens of wireless operators. More importantly, it
can take advantage of economies of scale in its competition with its Chinese
competitor, Huawei, which has been making inroads globally at the expense of
Motorola and other suppliers. The result would be that Nokia Siemens will
become a much stronger player in a number of markets, notably China and Japan.
The relationship between Motorola and Nokia Siemens may
grow over time. For example, Motorola co-CEO Greg Brown told the Tribune in an
interview that both companies are exploring a global relationship in public
safety. While the talks are preliminary, they would put both companies into a
dominant position in an area that's showing vast potential for growth.
If this seems like a match made in heaven, perhaps it is.
Both companies get something they need, and they stand to grow in their
respective areas of competence. Motorola, having found strong success with its
Droid line of smartphones, now needs the capacity to build more of them. Nokia
Siemens, for its part, needs access to markets that Motorola's equipment
business provides. The fact that the two companies are talking about future
deals should come as no surprise.