Nortel, Moto in JV Talks?
The Wall Street Journal, citing unnamed sources, reported this morning that Motorola Inc. (NYSE: MOT) and Nortel are in talks to form a joint venture that would combine their wireless infrastructure units under one roof. If consummated, the WSJ estimates the new JV would have sales of about $10 billion annually.
Motorola has already said it was considering a "structural and strategic realignment" of its businesses. (See Moto: Spin or Sale?) The big unknown: How would a combination with Nortel businesses unlock shareholder value? Or might it have the opposite effect, possibly disguising the unit's performance against a backdrop of older technologies?
Analysts say the deal could give Motorola's unit a new focus, while giving the JV a more realistic shot at keeping up with competitors. "Growth would remain an issue; however, with more scale (16% of global share) it will have a better base to build on if it would go aggressively into LTE (4G) in the future against Ericsson AB (Nasdaq: ERIC), Nokia Networks , and Alcatel-Lucent (NYSE: ALU)," writes Oppenheimer & Co. Inc. analyst Ittai Kidron in a note to clients sent this morning.
The Oppenheimer team says that for Moto, the reported talks are a good sign that the company is trying to unlock the value of its businesses. For Nortel, the analyst team writes that a potential deal is positive, "but more complicated given its strong contribution to Nortel's EPS."
While not commenting specifically on the JV reports, a Motorola strategist told Reuters this morning that the handset business is undervalued and that a recovery would have to be "product led."
"We're going to be expeditious about our review," Motorola's senior vice president for corporate development and strategy, Don McLellan, told Reuters at the Mobile World Congress show in Barcelona. "The market had dramatically undervalued mobile devices. That was a concern to us," he said, adding, "We know it can regain market leadership."
For Nortel, a catalyst is definitely needed in the mobility space. Roughly 40 percent of the company's revenues came from its carrier networks group last year -- and that unit mostly provides solutions for CDMA and GSM standards, which aren't dead center of the wireless future the company espouses frequently in blogs and interviews. Also, Nortel's enterprise group looked to be the only division with consistent growth, a sign that the company could stand to add to or change its product mix in most other areas.
— Phil Harvey, Editor, Light Reading