Almost 10 years ago, I read a research report by a financial analyst — I can’t remember his name, though I distinctly remember what he predicted — who said that in 10 years the wireless hardware business would consolidate around Ericsson and Nokia, which would own Motorola and Nortel. Of course, like many on Wall Street, he didn’t see Huawei coming. But his predictions are indeed coming true.
Earlier today, Espoo, Finland-based Nokia Siemens Networks, a company created by the merger of Siemens’ and Nokia’s networking business, announced that it would acquire Motorola’s wireless infrastructure networking business for about $1.2 billion in cash. Motorola isn’t selling the iDen business, which is a key technology used by U.S. government agencies, nor is it selling most of its wireless network infrastructure patents. However, Nokia Siemens Networks will inherit about 7,500 Motorola employees.
For Nokia Siemens Networks, the deal allows it get a bigger traction in two key markets — the United States and Japan. With the deal it becomes the third largest infrastructure provider in U.S. and the second largest worldwide. It will now be the top gear provider in Japan. NSN also gets access to the CDMA business and about 50 carriers including Sprint, Verizon and Vodafone. NSN also gets hold of Motorola’s WiMAX business, which has 41 deals in 22 countries. The deal should close by the end of this year.
The U.S. and Japan might be great markets for now, but the long term growth for companies like Ericsson and NSN are in emerging markets such as those in Brazil, India and on the African continent. In those markets, wireless gear makers have to contend with low-cost competition from the Chinese. NSN is fighting an uphill battle, and it’s finding itself in tough competition with Huawei and Ericsson; from that perspective alone, the $1.2 billion price tag is a bargain, theorizes Mark Sue, an analyst with RBC Capital Markets, in a note to his clients. The purchase price represents an EV/Sales multiple of just 0.31 times the FY 2010 revenue, Sue says.
The sale of the business is yet another step in the slow disintegration of Motorola, a wireless pioneer who once led the industry from the forefront. A series of management missteps, an inability to come to terms with the hard realities of the wireless business and the rise of Chinese vendors such as Huawei are the reasons why Motorola finds itself becoming a footnote in the wireless industry. Motorola hopes to become a major player in the smartphone business, and it has enjoyed some early success — but as they say, one swallow doesn’t make a summer.
Photo Courtesy of Nokia Siemens Networks.