Motorola Bid to Sell Mobile-Networks Unit Stalls
06/16 10:05
Motorola Bid to Sell Mobile-Networks Unit Stalls, Investors Say
By Scott Lanman
Schaumburg, Illinois, June 16 (Bloomberg) -- Motorola Inc.'s effort to sell its mobile-network equipment unit or combine it with a rival has probably stalled because potential partners can't or won't complete a transaction, investors said.
Motorola, the world's second-largest maker of mobile phones behind Nokia Oyj, ranks seventh in sales of equipment to transmit phone calls across wireless networks, according to Synergy Research Group Inc. Nortel Networks Corp. and Siemens AG, who would provide the best fit in a deal, either can't pay up or are waiting for overall spending to rebound, investors said.
Motorola executives acknowledge that the division has lagged rivals in winning orders for new, faster equipment. It's also at a disadvantage because the unit can't provide a full line of gear to customers such as Verizon Wireless Inc. Motorola President Edward Breen said the company is prepared to go it alone.
``The buyers are weak and getting weaker, and the markets are weak and getting weaker,'' said Kurt Lauber, a technology analyst at American Express Financial Advisors, which manages $217 billion and owned 10.7 million Motorola shares as of March 31.
The unit, Motorola's third biggest behind phones and semiconductors, accounted for 18 percent of the company's $6.02 billion in first-quarter revenue. Motorola expects to report its sixth straight loss this quarter before returning to a profit, excluding certain costs, in the period ending in September.
Siemens, Nortel
Schaumburg, Illinois-based Motorola has been in talks with Siemens and Nortel for a deal involving the unit, other news organizations have reported since October. Representatives of Motorola and Siemens declined to comment on the reports. A Nortel spokeswoman didn't return a call for comment.
Motorola shares fell 26 cents to $15.60 Friday. They have risen 12 percent in the past year.
The Motorola unit hasn't been in its current position for long. As recently as one year ago, Motorola was No. 2 behind Ericsson AB in sales of cellular-network equipment to wireless operators, Synergy Research said.
Since then, Motorola's sales have fallen behind those of Siemens, Nokia, NEC Corp., Lucent Technologies Inc. and Nortel, according to Synergy's first-quarter estimates. The unit's first- quarter revenue of $1.07 billion was down 36 percent from $1.67 billion in the year-earlier period.
Motorola's market share, now about 10 percent, has declined as rivals won more orders for so-called third-generation, or 3G, equipment that can transmit data to and from handsets at higher speeds than current gear can.
`Two Paths'
The business has reported four straight quarterly losses totaling $1.5 billion before taxes. Motorola has reduced the unit's workforce, excluding the part that makes specialized gear for Nextel Communications Inc., by 4,700, or 24 percent, to 14,700 since March 2001, said spokesman Scott Wyman.
Breen, speaking at a Bear Stearns Cos. investor conference on Wednesday, said Motorola is ``on a very deliberate path to go it alone in that business'' if it doesn't reach an agreement with another company.
Motorola rejected half of all potential orders from customers because it didn't want to finance them, Breen said. In addition, ``half of the 3G awards in the 3G marketplace are going to get re- bid again, at a minimum,'' he said.
``We are on two paths in the company and very strongly on the two paths,'' Breen said in his presentation. ``If there's an opportunity to consolidate in this business, we would look at a player that would want to be involved in those conversations.''
Best Fit
Spokesman Wyman declined to elaborate on Breen's comments.
``If it was an easy sell, it would already be done,'' said Shawn Campbell, telecommunications-equipment analyst at Northern Trust Corp., which manages $337 billion and held 19.2 million Motorola shares as of March 31.
Investors have said Nortel would provide the best fit for the Motorola unit because Nortel makes switches for wireless networks, while Motorola makes base stations, the other piece of the puzzle. Nortel and Motorola rank second and third behind Lucent in sales of gear based on the code-division multiple access, or CDMA, standard used by Verizon Wireless and Sprint Corp., researcher Dell'Oro Group said.
With its shares trading below $2 and the company facing a possible cash crunch, Nortel probably couldn't put together a deal, investors said.
Germany's Siemens is also a good fit because it specializes in gear based on the Global System for Mobile Communications, or GSM, standard that's dominant in Europe and China and would benefit from Motorola's CDMA expertise, investors said.
Yet Siemens might not want to buy a lagging business or attempt a trans-Atlantic integration, investors said.
``I'm not sure Siemens is all that interested,'' said Ted O'Connor, an analyst at Cambiar Investors Inc., which manages $2.3 billion and held 3.45 million Motorola shares as of March 31. ``They may be stuck with it.''
Lucent, which investors said was less likely as a partner or buyer, isn't in talks for a potential transaction, said Scott Erickson, a senior vice president for Lucent's unit, in a June 2 interview.
American Express's Lauber said Motorola won't be able to wring much profit out of the business.
``It's just going to be a major drag on their earnings,'' he said.
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