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Who Wants to Buy Motorola?

Sun, 03/02/2008 - 11:52am
Tina Teng

Google, Microsoft, other tech titans could benefit from acquisition of handset division.

Who wants to buy a business that’s struggling with losses, declining market share and an aging product line?

If the business in question is Motorola’s mobile handset division, then the answer potentially could be many of today’s top technology companies, including Apple, Dell, Garmin, Google, Microsoft, Nokia and Sony Ericsson. But how much sense does it make for any of these firms to say hello to Moto?

Motorola’s recent troubles have been the stuff of headlines: slowing demand for its existing mobile handsets, delays in new product introductions, declining market share and falling profitability. Motorola’s leadership appears to be taking steps to remedy these problems, putting CEO Greg Brown in control of the mobile handset unit effort.

nüvifone, an all-in-one

Garmin recently introduced the
nüvifone, an all-in-one, touchscreen
device that combines a premium
phone, mobile Web browser and
personal navigator.

However, word of Brown’s move has only served to spur rumors that Motorola is preparing the handset unit for sale. The direct intervention of the chief executive in a business unit typically means one of two things: either the company is taking heroic measures to save the division or the firm is polishing up the group to make it a more saleable and valuable commodity.

MOTO’S MENACES
Speculation about a possible sale has been spurred by Motorola’s recent poor performance in the mobile handset market.

The No. 3 ranked mobile handset maker continued to suffer declining market share in the fourth quarter – despite a nearly double-digit percentage sequential increase in shipments. The U.S.-based firm shipped 40.9 million mobile handsets in Q4 2007, down 37.7% compared to 65.7 million in Q4 2006.

Motorola’s market share declined to 12.1% in the fourth quarter, down from 22.6% in Q4 2006.

For all of 2007, Motorola shipped 159 million mobile handsets, giving it a 13.8% share of global shipments. This is down 26.8% from 217.4 million shipments in 2006 and about an 8 percentage point drop from its market share of 22% for all of 2006.

Motorola’s mobile device revenue amounted to $4.8 billion in Q4 2007, down 38% from $7.8 billion in 2006. The company suffered a $688 million loss in its mobile devices business in 2007, compared to a $2.7 billion profit in 2006.

BUYERS BEWARE
The sale of the handset division would provide obvious benefits to Motorola by ridding the company of an underperforming unit, which would please Wall Street investors who have favored such a move. But would anyone benefit from buying Motorola’s handset business?
The answer is a resounding “yes.”

Much of the technology business from Microsoft and Google on down is eying the mobile handset market. Not only does the business offer massive sales volumes, with 1.15 billion phones shipped in 2007 alone, it also represents the future of digital content, with mobile ads, navigation and location-based services potentially generating a new wave of revenue for companies participating in this market. The Motorola acquisition could give one of these companies a fast doorway into the market.

When word of Google’s entry into the mobile handset market first hit, many observers speculated that the company might offer an actual product – the legendary “gPhone.” However, Google’s efforts in this area so far have been limited to software, with the company offering its Android platform.

2007 Market Shares
2007 Rank Company Name 2007 Market Share
1 Nokia 38.0%
2 Samsung 14.0%
3 Motorola 13.8%
4 Sony Ericsson 9.0%
5 LG Electronics 7.0%
  Others  18.2%
  Total 100.0%
Source: iSuppli

This hasn’t stopped speculation that Google still will offer an actual handset. Apple’s success with its iPhone may make the handset business appear more attractive to Google. Because of this, iSuppli considers a Google acquisition of the Motorola handset business to be within the realm of possibility.

Microsoft is a realistic candidate as well because it wants to participate in the market for mobile services.

Garmin International, a unit of Garmin Ltd., also may have interest in this area. Motivated by the same desire to combine voice communications with navigation and location-based services, the company recently introduced the nüvifone, which combines a premium phone, mobile Web browser and cutting-edge personal navigator. Buying the Motorola division could help Garmin to further its ambitions in this area.

CONSOLIDATION BAIT?
Other obvious candidates to buy Motorola’s handset business are the company’s close competitors that lack a handset sales presence in North America. North America is the strongest region for Motorola’s sales. Companies that fit this description include Nokia, Sony Ericsson, and China’s Huawei Technologies Co. Ltd and ZTE.

However, Nokia and Sony Ericsson employ very different sourcing strategies and relationships. With mobile phone makers already having strategic supplier relationships in place, the addition of Motorola’s woes in this area could be too much of an obstacle to surmount.

iSuppli also believes there is reluctance among Chinese manufacturers regarding a Motorola acquisition. Culture conflict is one factor; the other is the implementation of the merger. In the case of BenQ Siemens, BenQ gained instant market share but the lack of a solid execution plan caused the company to go belly up.

Looking at the computer industry, Apple could expand its iPhone business by purchasing Motorola. Furthermore, Dell in the past has talked to major semiconductor suppliers about the possibility of making mobile handsets. A Motorola acquisition could allow Dell to make a quick entry into this business.

DIAMOND IN THE ROUGH
iSuppli can see potential benefits of the Motorola acquisition for any of these companies. Despite Motorola’s recent troubles, it still maintains a strong business in this area, and its products have good brand recognition. The company that buys Motorola’s handset unit and unleashes its value stands to benefit enormously.

Teng is an analyst, wireless communications for the market research firm iSuppl.
Contact her at tteng@isuppli.com.

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