Moto: Buy or Rent?
Motorola Inc.'s (NYSE: MOT) plans for a $2 billion spinoff of its semiconductor unit some time next spring will bring the unit's current lack of a wireless LAN product line into sharper focus.
Analysts agree that the unit, which currently labors under the temporary -- and dreadful --name of SPS Spinco Inc., will need to have wireless LAN chips to compete fully with major rivals like Intel Corp. (Nasdaq: INTC) and Texas Instruments Inc. (NYSE: TXN) (see Motorola Spins Off Chip Biz). But exactly how SPS Spinco will enter the sector is still a matter for debate.
As Will Strauss, principal consultant at Forward Concepts Co. points out, Motorola is already late to market and will have to compete hard in an overcrowded sector where the margins that can be earnt on chipset sales fall month-by-month.
Despite this, Strauss feels that it will benefit Spinco to have 802.11 skills in-house as the technology becomes more prevelant in the marketplace. This is because chip vendors will need to be skilled in combining 802.11 with other wireless technologies, such as cellular chipsets, and delivering smaller and more integrated products.
At the moment, Motorola is sourcing the chipset that is being used for its first combined cellular and WLAN mobile handset from Texas Instruments rather than building the part itself (see Motorola Plots WLAN VOIP Move).
"My counsel to Motorola -- and they haven't asked for it -- is to buy a startup soon so that they can still get a bargain," says Strauss.
This wouldn't be an unusual move as the market is currently in the midst of an M&A frenzy. Larger players in this market are snapping up startups to add skilled wireless engineers and fill gaps in their product lines (see STM Buys Synad for $55M and Intel Acquires Mobilian).
Analysts agree that Spinco will need to buy a startup that already has the latest technology such as an all-silicon CMOS radio under its belt and that supports all current 802.11 standards (see Multimode Is More for more on chipset technology requirements for 2004).
Strauss names Bermai Inc. and IceFyre Semiconductor Corp. as potential acquisition targets for Spinco SPS (see Bermai Buffs Up and IceFyre Rocks the Living Room).
Bob Wheeler, analyst at the The Linley Group adds Envara Inc. to the list (see Envara Envisions 802.11g).
Yet Wheeler reckons that financial concerns could make Spinco's leadership leery of spending too much. "My take on the spinoff is that management will be under considerable pressure to bring the company into profit."
This could delay any prospective acquisition plans, Wheeler thinks.
So, another option, he says, is to license 802.11 technology from an independent vendor. "The obvious place to go for licensing is Atheros," Wheeler notes. "They're the last major independent vendor left." Motorola had not returned calls about its WLAN strategy by press time.
— Dan Jones, Senior Editor, Unstrung