Left: Rajeev Suri of NSN: addition of the unit will take NSN from number
five to number three in the US. Right: Greg Brown of Motorola: NSN is
a logical partner for the networks business
Rajeev Suri, the CEO of Nokia Siemens Networks, believes the deal to take over most of Motorola’s wireless business will give the company scale — especially in markets where NSN has been weak, such as the US and Japan.
Once the $1.2 billion deal is done, expected by the end of 2010, NSN will have customers via the acquisition in Verizon Wireless, Sprint and Clearwire in the US, KDDI in Japan, China Mobile in China and Vodafone in a number of countries.
“This deal is about scale,” said Suri, announcing the purchase. “This deal certainly achieves that.” Some of those operators are already NSN customers, but the deal gives it “incumbent positions” with more than 50, he said.
For its money— a shade less than was rumoured a week or two earlier — NSN gets a business which had sales of $3.7 billion in 2009, equivalent to €2.8 billion at current rates. That is 23% of NSN’s 2009 sales of €12.5 billion — a substantial growth in the group’s business if Motorola’s contribution can be sustained.
Suri said that NSN will buy the business with finance it already has in place. As a private company — 50-50 owned by Nokia and Siemens but not publicly quoted as a separate entity — NSN will not need to call a special shareholders’ meeting.
The deal is too small to need a meeting of Motorola’s shareholders, say observers. The group is capitalised at $18 billion. Indeed, days after the announcement the share price reached a high for 2010 at almost $8, compared with $6.15 in late January, an increase in valuation in six months that’s well over the money it’s receiving from NSN.
Number one in Japan
Negotiations were smooth, said someone closely involved, with “a willing seller and a willing buyer”.
The addition of the unit will take NSN “from number five to number three” in the North American market, said Suri. It will be number one among foreign vendors in Japan, a market dominated by Japanese companies.
In the world infrastructure market, the deal reinforces NSN’s number two position, said the company.
Motorola has being trying to find a new home for its wireless networks business for a couple of years, but the desire to sell has been public for a much shorter time — though as often as not Huawei was tipped as the likely bidder: Motorola has had a strategic partnership with Huawei over 3G.
In early 2009, Motorola co-CEO Greg Brown told Global Telecoms Business that he did not see the likelihood of further mergers.
“Consolidation in the network infrastructure business is easier said than done,” he said at the time, talking to GTB at the 2009 Mobile World Congress. He pointed to difficulties with “the size of the organisations, the cultural considerations, the rationalisation of product portfolios”.
That’s something NSN has experience of, being the result of a difficult — still difficult — merger between Nokia’s networks division and the telecoms interests of Siemens. There are persistent rumours that Siemens wants to reduce its stake or sell entirely.
According to Brown in 2009, consolidation may have been talked about for many years but it “has been in actuality slower to materialise because of those structural challenges which is why I think that it’s as much about strategic partnerships as it is about consolidation”.
In July 2010, Brown said about the sale that “NSN is a logical partner for the networks business”, and added: “We’ve been working on this for several months”.
For Motorola, the sale has come at a good time. The company plans to split into two public companies in early 2011. One, Motorola Mobility, will make handsets, mobile devices and video set-top boxes; co-CEO Sanjay Jha will lead it. The other is Motorola Solutions, to be headed by Brown and taking over the group’s public safety and enterprise operations. According to Brown, there are no other talks about acquisitions taking place. Removing the wireless business from the split “purifies the portfolio”, he said.
No interest in iDEN
NSN will take over virtually all of Motorola’s wireless infrastructure operations, with the significant except of its iDEN business, with annual sales of $400 million. This is a mobile technology developed by Motorola itself, sold to Nextel — now part of Sprint Nextel — but to few others around the world.
Sprint has kept iDEN going, but it is clearly a legacy technology with a small market compared with other 2G systems.
The core Sprint business uses CDMA for 2G and 3G and the operator is promoting WiMax as its 4G solution, via its investment in Clearwire, though it ultimately could move to LTE. As a result, iDEN’s life expectancy is limited.
But what NSN does get is Motorola’s interest in existing primary 2G and 3G technologies, CDMA and WCDMA; as well as its 4G business, both LTE and WiMax.
Motorola has “real commercial” LTE contracts, said Suri. In February 2010, Zain signed an LTE contract with Motorola for its Saudi Arabian operation. Timing suggests that Zain would have been aware of NSN’s likely interest in the business.
KDDI is another key LTE customer for Motorola, and now NSN. The deal to build KDDI’s LTE network was announced a year ago. The Japanese operator plans to start commercial service by December 2012 following trials from this year.
The business is “a beautiful addition to our portfolio”, said Suri. But it is, though, “a very tough and dynamic industry”.
Suri says he will retain all 7,500 Motorola employees in the infrastructure division. Around 1,600 are in Illinois, Motorola’s home state — the company began in the 1920s making radios for the US car industry. It is based in the north-western suburbs
The staff who will join NSN have an “innovative creative spirit”, he added, though he recognised their “strong ties to Motorola’s culture”.
One of the curious features of the deal is that Motorola holds on to its intellectual property rights — apparently in perpetuity, but in any case long enough to make NSN happy. “NSN will get whatever IP they need to run the business,” said someone familiar with the negotiations.
Foreign investment
Over the three or four months of negotiations, NSN had to convince the US Treasury’s Committee on Foreign Investment in the United States that it was a suitable company to buy a US technology business.
CFIUS approval is not mandatory but is strongly recommended — in the sense that anyone who did not seek approval would be foolish. Normally consultations would start long before the deal became public, but NSN’s path was smoothed here because it already supplies US telecoms companies with infrastructure so is known to the authorities.
But CFIUS, headed by the secretary to the Treasury, currently Timothy Geithner, is the organisation that would have had a quiet word in the ears of Brown and his colleagues in Motorola to whisper that a sale to Huawei was not a good idea. Huawei has been trying to build its business in the US: it now employs Matt Bross, the American who is former CTO at BT, as its international CTO.
Until early 2008 Huawei was the minority partner in an attempt by Bain Capital to buy equipment company 3com. Bain and Huawei signalled their abandonment from the 3com deal by withdrawing their filing from CFIUS.
Huawei never got that far with the Motorola business: as a western company, NSN had a clear advantage — as did Alcatel a couple of years ago when it acquired Lucent in late 2006.
Dick Lynch, the CTO of Verizon, said the Motorola/NSN deal “brings together two important Verizon suppliers” and said he looked forward “to our continuing work with Nokia Siemens Networks”.
Bids for Nortel units
It’s NSN’s third attempt to buy a US telecoms infrastructure business in the past couple of years — after two abortive tries to buy chunks of the bankrupt Nortel. NSN was the stalking horse for Nortel’s CDMA business, which Ericsson won for $1.13 billion in July 2009. A few months later it bid for the metro ethernet business: Ciena won the auction last November for $769 million.
Why NSN’s interest in CDMA, when it is a legacy technology that is being replaced by WCDMA and then LTE? Because it gives the company access to the customers, seems to be the answer. “This deal is about customers,” said Suri.
Bosco Novak, head of customer operations, accepted that customers are looking to move from CDMA to the next generations. “The addition of the Motorola wireless network infrastructure business is targeted to ensure that we are well placed to meet those needs.”
Once the deal is completed, by the end of 2010, it may not be the end of a relationship between NSN and Motorola — or at least Motorola Solutions. At the end of the announcement of the deal is a curious paragraph: “Nokia Siemens Networks and Motorola also are exploring a global relationship in the public safety arena,” it said. “This relationship would combine Motorola’s leadership in providing solutions to public safety organizations with Nokia Siemens Networks’ commercial LTE solutions.”
Once Motorola is split into two, each part will be free to seek its destiny. It’s already been rumoured — in an industry full of rumours many of which never come true — that a number of handset makers may be interested in Motorola Mobility.
Would NSN be interested in Motorola Solutions? Even if it isn’t, it could be the basis for one of those strategic partnerships that Brown enthused about back in 2009. GTB
GTB's news story on the announcement: http://www.globaltelecomsbusiness.com/Article.aspx?ArticleID=2633272
GTB's interview with Greg Brown in 2009: http://www.globaltelecomsbusiness.com/Article/2224980/Search/Results/Interview-Greg-Brown-of-Motorola.html?Keywords=motorola
Webcast with Suri and Brown following the announcement in July 2010 (requires registration): http://investor.motorola.com/