During Motorola's last attempt to sell off a big business, the company was forced to take a detour. The company hopes a new effort—this time, to find a buyer for its TV-set-top-box and network-equipment businesses—meets with better results.
For years, Motorola (MOT) has been toying with the prospect of selling parts of the division that includes set-top boxes and network equipment, say people close to Schaumburg (Ill.)-based Motorola. The Wall Street Journal on Nov. 11 reported that Motorola is in the early stages of trying to sell the operations for $4.5 billion.
While Motorola's bankers may find interested parties, it's not clear they'll get the hoped-for price. Motorola is considering the sale amid efforts to return to profitability after losing market share in the U.S. handset market it once led. The company plans to spin off the handset division next year after having failed to find a buyer for it. Motorola said in 2008 that it would split the company into two publicly traded parts.
With set-top boxes and network gear, Motorola will need to sell prospective buyers on operations with a mixed track record. The network gear business in particular has struggled. In recent years, the unit managed to generate a profit, largely through aggressive cost-cutting. But there are questions about its viability over the long term. The business, which sells infrastructure gear to wireless carriers, is a bit player in such lucrative areas as the sale of the 3G cellular base stations and switches that big global telecoms have used to build out their networks. Motorola is also losing ground in the next-generation technology race. The company is not much of a factor in the dominant 4G wireless broadband, relying instead on the uncertain prospects of WiMax, an alternative form of mobile broadband. As one former Motorolan bluntly puts it: "They have no market share left and they have no future [in networks]."
potential buyers face barriers
Motorola refused to comment on the report of a possible sale other than to confirm that a planned separation into two independent, publicly traded companies remains its long-term goal.
Even in the better-performing set-top-box business, Motorola has suffered in recent quarters from the effects of the recession. Sales have not been particularly robust, and competition has stiffened. "The home video business has been tough this year," Co-CEO Greg Brown told BusinessWeek in an interview last month, citing the challenges of the housing crisis in the U.S. Still, Motorola's set-top business is at the head of the pack, with 27% of worldwide cable set-top-box shipments and 27% of the Internet protocol (IP)-box market in 2008, according to researcher InStat.
Challenges aside, Motorola may not have the luxury of waiting for a better time to sell. "It's just a move to raise cash from a market that's not very interesting," says Susan Eustis, CEO of . Motorola could use the proceeds to support growth in a mobile-phone division that's gotten a new lease on life after years of red ink and lackluster products. New Motorola devices sporting the Android operating system have been well-received. The Droid, in particular, has sparked consumer appeal.
For each potential buyer there are barriers. Huawei Technologies is the likeliest suitor for the networks business. Huawei is eager to make deeper inroads into the U.S. But one banker says that U.S. regulators would not be quick to approve such a deal.
key telecoms may be slow to bid
Telecom equipment stalwarts such as Ericsson (ERIC), Nokia-Siemens, and Alcatel-Lucent (ALU) might also step up to the plate. Each has an eye on Cisco Systems (CSCO)—already the star in networking equipment—which boldly entered the set-top-box business with its 2005 acquisition of Scientific Atlanta.
While Ericsson likely has the resources, it recently bought similar assets from Nortel Networks. Alcatel is mired in a cumbersome restructuring. And Nokia-Siemens doesn't have a great deal of available capital, analysts say.
Another complication: how to divvy up patents held by the businesses. Motorola's networks business has loads of patents associated with its radio technology, but those patents often overlap with technology associated with the phones in its handset business. Motorola's previous attempts to sell the networks business have stumbled over the complexity of such patents, as execs grappled with who gets to own the intellectual property. At least with the set-top-box unit, there's no patent overlap with the phone unit.
Several of the Asian consumer electronics makers, such as Samsung, Sony (SNE) and Toshiba (TOSYY), might be interested in acquiring assets that would boost their set-top market shares and could be bundled with their other home electronics gear. Motorola's set-top unit "is a good business with manufacturing economies that would come from merging set-tops with TVs," says an executive familiar with Motorola's thinking.