Motorola & Nortel ‘merging wireless kit divisions’

Defensive posture

US electronics giant Motorola Inc is planning to sell its mobile network business to Canadian networkingquipment vendor Nortel Networks Corp - although there are said to be issues about how Nortel, which alongside Lucent Technologies Inc, appears to be on the brink of financial collapse as demand for telecoms and networking equipment has nose-dived in the last 18 months. Nortel and Motorola both refuse to comment on the rumors.

According to Business Week magazine, the two companies are in advanced negotiations for the sale of Motorola's wireless network equipment business to Nortel, which would then be spun out of Nortel as an independent company.

Motorola, which has a strong established infrastructure business in second-generation mobile technologies, has failed to make a real impact in the third-generation world, enabling companies such as Siemens AG, Alcatel SA, NEC Corp and Fujitsu Ltd to take 3G infrastructure business that it should have won.

Nortel on the other hand is emerging as a strong third or fourth-placed player in this new market, but without a substantial second-generation customer base, it makes it harder for Nortel to win business.

With European and Asian mobile operators slashing their forecasts for capital spending on their networks, and even Motorola strongholds such as China saying that spending in 2002 will fall at least 10% compared to 2001, no company's infrastructure business is in particularly good shape, even that of market leader LM Ericsson Telefon AB. This has been made worse by reports last week from a series of European operators, which have all announced that there are cutting back spending in an effort to reduce debt levels.

Motorola, was looking to find some semblance of order for the group with the merger discussions it held with German conglomerate Siemens AG in October last year. Siemens, as a giant conglomerate, has actually managed to restructure itself into a relatively well-ordered, profitable group.

Motorola's management, on the other hand, seem to completely restructure the operations of the enormous conglomerate every year, which always seems to make a massive loss somewhere in the business. In 2001, for example, the company reported a $3.9bn loss on sales down 20.1% at $30bn, a performance the company blamed on the twin downturns in the semiconductor and telecommunications industries. Overall Motorola's wireless networks business lost $1.4bn in 2001, on sales of $6.5bn.

Motorola's wireless equipment division could have a hidden financial timebomb, in terms of the vendor finance it has given out to operators across the world, including the $2bn it gave to Turkish mobile operator Telsim Mobil Telekomunikasyon Hizmetleri AS, which it is currently trying to recover in a New York court. Nortel's precarious finances could also make any deal more difficult. The company's debt is rated at one notch above junk, and its shares have fallen to a seven-year low.

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