Ericsson Cautiously Eyes Moto Handset Unit

By Roy Mark  |  Posted 2008-02-01 Print this article Print

After announcing 4,000 layoffs and disappointing fourth-quarter earnings, company officials say such an acquisition is uncertain. 

Ericsson said Feb. 1 it will consider buying Motorola's struggling handset unit. However, after announcing a 42 percent drop in fourth-quarter profits and pending job cuts of 4,000, Ericsson CEO Carl-Henric Svanberg said any Motorola deal would be approached cautiously.

Motorola, after another sharp decline in mobile handset sales resulted in an 84 percent decline in fourth-quarter net income, announced Jan. 31 that it will consider selling off its cell phone division. Motorola fell from No. 2 to No. 3 in global handset sales in 2007.

"As professional business leaders, we look at everything, but we would take a very cautious view on such a thing because we do believe you are better off doing it on your own," Svanberg said during a teleconference. "A big acquisition is always cumbersome."

Ericsson said fourth-quarter net income was $879 million. Sales were flat at $8.5 billion, and Svanberg blamed the results on turmoil in emerging markets and a slowdown in U.S. network upgrade spending.

Svanberg said the 700MHz spectrum sale currently underway in the United States, "could lead to new initiatives, new technologies. Things should start moving in the U.S."

Meanwhile, at Motorola's headquarters, President and CEO Greg Brown said the company was "exploring ways in which our Mobile Devices Business can accelerate its recovery and retain and attract talent while enabling our shareholders to realize the value of a great franchise."

According to a Motorola statement, the search for what to do about its profit draining handset unit "may include the separation of Mobile Devices from its other businesses in order to permit each business to grow and better serve its customers."

When pressed by analysts about possibly acquiring Motorola's handset unit, Svanberg said Ericsson is usually a reluctant acquirer.

"We are probably the company of all our competitors that has acquired the least because we do base our strategy on our own internal work -- R&D and organic growth," he said.

If Motorola does sell its handset unit, billionaire investor Carl Icahn, who holds about 3 percent of Motorola, said Jan.31 he still plans to mount a shareholder takeover fight. Although Icahn was successful in ousting former CEO Ed Zander from office last year, he was unable to land a spot on the company's board of directors.

Icahn has preached for months that Motorola needs to dump its handset unit.

"For many months I have been publicly advocating the separation of Mobile Devices from Motorola's other business and I am pleased to see that Motorola is finally exploring that proposal," Icahn said in a statement. "However, we have previously informed Motorola that we expect to run a slate of directors for the upcoming annual meeting and this announcement by Motorola will not deter us from that effort."

Icahn said the company "is finally moving in the right direction, but certainly still has a long way to go."

All the publicity generated by Motorola's handset travails has overshadowed better news from the company's other two major divisions, the home and networking segment and the enterprise mobility unit. Featuring television set-top boxes and modems, the home and networking unit increased sales by 11 percent to $2.7 billion. Operating earnings, though, fell 14 percent to $192 million.

The enterprise mobility solutions division saw a 40 percent increase in operating earnings of $451 million on sales of $2.1 billion, largely on the strength of acquiring Symbol Technologies in 2007.

"The integration of Symbol is essentially complete," Brown said.


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