Optical/IP Networks

Motorola + Nortel = Layoffs

The industry has been buzzing with speculation that Motorola Inc. (NYSE: MOT) and Nortel Networks Corp. (NYSE/Toronto: NT) are planning to merge their loss-making wireless infrastructure equipment units. Any such merger would be likely to lead to more job cuts at the units because of the common ground between the two firms' product portfolios.

The two parties are being pretty tight-lipped about any possible deal. Spokespeople from both companies told Unstrung that they were not in position to comment on “rumors and speculation.” However, if such a merger were to take place, then the new unit could indulge in what Motorola and Nortel have become best at over the last year or so – “right-sizing” their workforces.

According to a report from RBC Capital Markets analyst John Wilson, Nortel could already be on track to cut another 5,000 to 10,000 people from its workforce, because carriers are simply not spending enough money on network equipment. The Canadian vendor is expected to have fewer than 50,000 employees by the end of this month, slashed from a high of 95,000.

Motorola undertook its last round of blood letting – oops! I mean "adjustment" – in January, announcing that it would cut 2,500 manufacturing jobs. The electronics company has eliminated nearly a third of its work force since August 2000, when it had 150,000 employees.

Motorola's president Ed Breen said in February that there were no "sacred cows" at the company and that it would sell off units if they did not meet the company’s objectives. Speculation last year that IBM Corp. (NYSE: IBM) would buy Motorola’s semiconductor unit has – as yet – come to nothing.

A further slimming down of operations to create a company that could better compete against Ericsson AB (Nasdaq: ERICY) and Nokia Corp. (NYSE: NOK) in the over-crowded wireless network equipment market would likely be the sole objective behind a combined Nortel/Motorola spinoff. Ericsson has 30 percent of the global wireless infrastructure market and Nokia 13 percent, while Motorola has 12 percent and Nortel 10 percent, according to market research firm Yankee Group. Neither Motorola nor Nortel have much different in the way of wireless infrastructure technology to bring to the other’s table. So combining the two portfolios and cutting jobs would be the only way to make a new unit attractive to potential investors.

Indeed, Nortel and Motorola each offer almost exactly the same palate of second- and third-generation network technologies, including GPRS (general packet radio service), various generations of CDMA (code-division multiple access) technology, and UMTS (universal mobile telecommunications service). Of course, Motorola has its proprietary iDEN technology, a version of digital time-division multiple access technology that supports both packet and circuit switching. However, the only major carrier to have implemented iDEN is Nextel Communications Inc., which makes it a rather paltry dowry to bring to any wedding of the two units.

If Nortel and Motorola do decide to join forces, analysts predict that it will be a harbinger of more consolidation in the wireless equipment market. Other players like Lucent Technologies Inc. (NYSE: LU), Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Siemens AG (NYSE: SI; Frankfurt: SIE), and Samsung Corp. will need to sell or merge units to survive in a saturated market for wireless kit.

— Dan Jones, Senior Editor, Unstrung

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