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Optical/IP

Moto Strikes Back

Motorola Inc. (NYSE: MOT) has been quick to hit back at reports flagging it as a victim of this week’s $35 billion mega U.S. carrier merger, talking up a three-year network extension contract with Nextel Communications Inc. (Nasdaq: NXTL) as proof of its future health.

Nextel currently runs a proprietary network technology developed by Motorola called iDEN. Analysts estimate the network generates approximately 20 percent of Motorola’s total infrastructure revenue and 17 percent of the company’s network profits (see Nextel & Moto WiDEN Ties).

The combined “Sprint-Nextel” business will, however, see Nextel eventually migrate its customer base to Sprint Wireless's (NYSE: PCS) CDMA 1x EV-DO network. Earlier this week Sprint CEO Gary Foresee stated that the companies will “begin a transition of iDEN into EV-DO” in 2008 (see Deal Solves Nextel 3G Dilemma and Sprint Confirms EV-DO Network).

This move has led observers to cite Motorola as a clear loser in the deal, despite the vendor’s position as a shared supplier to Sprint’s EV-DO network (see Nextel-Sprint: Winners & Losers and Sprint Invests in EV-DO).

The strategically timed announcement from the vendor this week seems an attempt to allay such fears. Motorola has won a supply agreement at Nextel for iDEN infrastructure and handsets for a period of three years from January 1, 2005 through December 31, 2007.

“Based on current projections, Motorola expects the value of its infrastructure and subscriber shipments to Nextel to be comparable to the average levels we’ve seen over the past two years,” comments Adrian Nemcek, president of the vendor’s networks business, in a statement.

In February this year Nextel outlined its intention to increase capital expenditure to $2.2 billion in 2004 (see Nextel Boosts Moto). Specific financial details of this latest announcement have not been disclosed.

Analysts believe the deal is a boost for Motorola’s short-term prospects but remain cautious on its distant outlook.

“While longer-term we continue to believe a Sprint PCS/Nextel merger is likely to adversely impact Motorola, near-term, we view this announcement as positive,” reports a Lehman Brothers research note.

“In spite of the three-year contract, Motorola is naturally the big loser, as its exclusive relationship with Nextel in infrastructure and devices has vanished,” adds Bill Lesieur, director at Technology Business Research Inc. (TBR).

In a separate announcement, Motorola also unveiled its latest push-to-talk kit for Nextel. The new IP-based platform is intended to be interoperable with the future EV-DO network. Commercial deployment is forecast for the first half of 2006 (see Moto Touts PTT Upgrade).

— Justin Springham, Senior Editor, Europe, Unstrung

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