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Moto Makes New Friends

Ray Le Maistre
LR Mobile News Analysis
Ray Le Maistre, Editor-in-Chief
7/26/2006

Motorola Inc. (NYSE: MOT) kept the newswires busy today with a string of partnership announcements and the acquisition of video server firm Broadbus Technologies Inc. (See Moto Buys VOD Vendor Broadbus.)

Announcing the deals during its strategy day, Motorola appears to have joined Nortel Networks Ltd. in adopting an alternative strategy (partnerships and joint ventures) to the M&A route preferred by rivals Alcatel (NYSE: ALA; Paris: CGEP:PA), Lucent Technologies Inc. (NYSE: LU), Nokia Corp. (NYSE: NOK), and Siemens Communications Group . (See Alcatel, Lucent Seal Deal, Nokia, Siemens Create Networks Giant, Nortel Sees $1B From Microsoft Alliance, Light Readers See Nortel Staying Single, and Nortel, LG Seal Deal.)

So who has Motorola climbed into bed with? Here's the rundown.

It's Huawei for 3G
Motorola is teaming up with Chinese giant Huawei Technologies Co. Ltd. to tackle the UMTS and HSPA (high speed packet access) market -- that's 3G in the GSM world. (See Moto, Huawei Team.)

Motorola is predominantly a CDMA wireless infrastructure vendor, and has done well on its own in the CDMA2000 market as carriers have moved into the high-speed data world. (See Moto Wins Brazil 3G, Moto Chases 3G Success, and Moto Expands China Unicom.)

But it's tougher in the UMTS/HSPA world -- a much bigger market -- where Motorola is up against the likes of Ericsson AB (Nasdaq: ERIC), Nokia Corp. (NYSE: NOK), and Siemens Communications Group ; and although it was a GSM pioneer and has customers and products, it has struggled to make its mark in 3G. (See Motorola Takes 3G Indoors and VIBO Picks Moto for UMTS .)

Motorola has already had one crack at 3G development in Beijing, but has now teamed up with Huawei to develop UMTS and HSPA equipment in Shanghai. (See Moto Develops 3G in China.)

It's not giving anything away about the specifics, especially any financials relating to investments, though it's worth noting this is not an equity joint venture, but an R&D collaboration.

Tom Quirke, Moto's global director of marketing for UMTS solutions, says only that the two companies will jointly develop new UMTS and HSPA gear that each will then market worldwide under its own label. "We'll be discussing with our customers how they can migrate to this new equipment," says Quirke.

Financial details weren't available, but the Moto man says the partnership gives the vendor "significant R&D cost savings." He adds that the two companies have been working together on GSM and UMTS developments for five years.

Lehman Brothers analysts Tim Luke and Jeff Kvaal reckon Motorola will be providing its OSS and services expertise to the collaboration, while Huawei will "contribute core systems for hardware and software."

They believe the deal could alleviate some investor concerns about how Motorola may migrate its GSM customers -- particularly those in China -- to UMTS and compete with rivals such as Ericsson, Alcatel, and Nokia/Siemens.

"Motorola may be able to generate service revenue from Huawei's existing account base," state the Lehman analysts in a research note issued today.

That positive could be a negative for Nortel. The Lehman team reckons that "as the other major players in UMTS have already merged or partnered, Nortel may be left with a sub-scale GSM/UMTS business with limited opportunities for it to scale up or divest entirely."

Indian firms hold services key
Motorola's other new friends are Indian firms Tech Mahindra Ltd. -- formerly Mahindra British Telecom –- and Wipro Ltd. . (See Moto, Wipro Form JV and Tech Mahindra, Moto Team.)

The hook up with Wipro, a rising star in telecom systems integration and support, is an outsourcing joint venture called WMNetServ, which will provide managed services such as network design, planning, rollout, optimization, and maintenance to Motorola's service provider customers, explains Dr. A. L. Rao, COO of the Indian company. (See Wipro Sweeps Across Europe and Wipro Reports Q1 .)

He says Wipro is the majority stakeholder in WMNetServ but wouldn't confirm that it held a near 80 percent stake, as reported by CNBC, or comment on the levels of investment in the venture.

Wipro will establish an operations center in Bangalore that will work in tandem with Motorola's existing support centers in North America and Europe.

The duo is targeting a growing market that has already generated business for some of its rivals, most notably Ericsson and Nokia, and is coveted by others, such as Nortel. (See Nokia Wins Saudi Deal, Nokia Touts Managed Services, Indian Operator Outsources to Finland, Ericsson to Run 3's Network, and Nortel Targets Services Growth.)

Dr. Rao says the JV should be up and running commercially by August 31 at the latest.

Motorola's other new Indian partner is integration and OSS expert Tech Mahindra, with which it is forming a JV called CanvasM to develop new applications for service providers based on Motorola's service delivery platform, Global Applications Management Architecture.

— Ray Le Maistre, International News Editor, Light Reading

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