Any Suitors for Moto Mobile Devices?
>> Asian Companies Wary Of Motorola
Why handset makers Samsung, Sony Ericcson, and LG aren't lining up to buy the struggling U.S. company's mobile-phone division
Moon Ihlwan (Seoul bureau chief)
Ian Rowley (Tokyo)
Chi-Chu Tschang (Beijing)
BusinessWeeK
February 4, 2008
tinyurl.com
Once Motorola (MOT) revealed on Jan. 31 it was considering selling its handset division, speculation about a possible buyer quickly focused on companies in Asia. For all of its woes, Motorola still has a sizable presence in the U.S. market that might prove appealing to an ambitious Korean or Japanese brand, or an up-and-coming Chinese company.
No Asian company has yet stepped forward to express interest in striking a deal. And analysts who follow the industry see the beleaguered asset as a tough sell in Asia. "If you take a coolheaded approach to the handset business, I don't think any major industry player will want it," says Greg Roh, electronics analyst at Korea Investment & Securities in Seoul. "It is not a case of one plus one equaling two.…A takeover and ensuing restructuring could be costly and dangerous."
BenQ's Cautionary Tale
A big reminder of the difficulties is the collapse of the highest-profile attempt by an Asian company to acquire a struggling Western cellular brand. In 2005, the Taiwanese electronics group BenQ, which had won respect in the telecom and computer industries for its innovative design and was making headway establishing its brand worldwide, tried to jump-start its global push by buying the struggling handset unit of Siemens (SI). The deal proved far too big for the Taiwanese company, though, and in 2006 BenQ Siemens went bankrupt.
The damage didn't end with the handset division, though, and last year BenQ took on a new name, Qisda, and a new strategy to focus on contract manufacturing. "Recent rumors of strong Chinese interest [in the Motorola unit] make sense only if [Chinese companies] have short memories or are not familiar with the BenQ-Siemens fiasco," says David Kerr, vice-president for the global wireless practice at Strategy Analytics.
As BenQ's experience illustrates, in the fiercely cutthroat handset market, a misstep could push a manufacturer way behind rivals, and achieving synergies could take time. A foreign takeover would probably involve the headache of integrating vastly different operations and clashing cultures, which could discourage any potential buyer from courting Motorola, particularly when its existing strategies are working. "It could be a dangerous undertaking," says Michael Min, a specialist on information technology companies at fund manager Tempis Capital Management.
Possible Suitors Deny Interest
In fact, officials at three of the top five handset makers responded negatively to the idea of acquiring Motorola's mobile-phone manufacturing business shortly after the U.S. firm, once a global cell-phone icon, announced on Jan. 31 that it is considering separating the unit from the rest of the company, possibly through a sale. Of the top five cell-phone makers, all but Motorola posted growth in revenue and sales last year.
"We are not interested in buying Motorola's handset business," says spokesperson Joh Joong Kwon at South Korea's LG Electronics. "We believe it is better for us to focus on our resources to grow on our own."
Joh was referring to some speculation in the U.S. that LG, currently the world's No. 5 cell-phone maker, could close in on industry leader Nokia (NOK) of Finland and crosstown rival Samsung Electronics with assets of Motorola, which fell last year from No. 2 in the world to No. 3 behind Nokia and Samsung. Samsung was also tipped as a potential buyer because that would give the Korean electronics powerhouse the capability to narrow its gap with Nokia. Samsung spokesperson James Chung declined comment on a possible bid for Motorola, saying his company won't comment on rivals, particularly when Motorola's board hasn't made a firm decision to put its mobile-phone unit on the block. But a senior Samsung manager said, "There's no move whatsoever on a takeover for our phone business."
A Motorola deal could similarly be a boost for No. 4-ranked Sony Ericsson, a venture of Sony (SNE) and Ericsson (ERIC), which has placed a priority on growing in the U.S. But Ericsson CEO Carl-Henric Svanberg cautioned against such a deal. "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 told analysts, according to a Reuters report.
Challenges Await Any Buyer
Motorola is certainly a valuable asset, especially in the U.S. where it controls about a third of the cell-phone market. But analysts point out that a foreign suitor may not inherit the U.S. firm's market share because of the strong influence wielded by mobile service providers there. "Mobile carriers sometimes want exclusive arrangements with phone suppliers, and that sometimes makes it difficult for one company to supply phones to rival carriers," says Harrison Cho, handset analyst at Mirae Asset Securities in Seoul.
Keeping talent would also prove a big challenge for an Asian buyer. "The mobile-phone business is all about R&D and marketing talent, and there's a history of Asian companies failing to retain top engineers and marketers in their U.S. operations," says Roh of Korea Investment. For Japanese and Korean companies, which have already established their brands and beachheads in the U.S., increasing marketing spending there could be an easier way of boosting their presence without running into a potential hazard. David Gibson, an analyst at Macquarie Securities in Tokyo, says companies with weak brands would probably see value in Motorola.
That makes smaller Chinese hardware makers more likely suitors. U.S. observers have speculated that Huawei Technologies and Lenovo Group (LNVGY), which recently bought IBM's (IBM) PC business, could show interest in Motorola. But all Chinese handset makers are struggling badly, even in their home market, and most are bleeding red ink. Lenovo, the largest local handset maker in China with a 5.9% market share in December, has hinted it will quit the handset business altogether.
With even the strongest Chinese handset maker contemplating withdrawing from cell-phone manufacturing and established Asian players seeking organic growth, Motorola's best bet may well be private equity firms. ###
- Eric - |
