After a pathetic 2009, fiscal 2010 is becoming a fruitful one for Nokia Siemens Networks (NSN), a 50-50 joint venture between Nokia Corp. (NOK) and Siemens AG (SI). Yesterday, NSN announced that the company has decided to purchase most of the wireless network infrastructure assets of Motorola Inc. (MOT) for $1.2 billion in cash.
However, Motorola will keep its iDEN business and other selected assets and almost all the patents related to the wireless network infrastructure business. The deal is expected to close by the end 2010.
Motorola’s wireless infrastructure covers all of GSM, CDMA, and WCDMA networks as well as next-generation (4G) WiMAX and LTE networks. The company has agreements with more than 50 operators mainly in the U.S., Japan, and China. Although globally Motorola controls just about 3% market share, its WiMAX business commands a substantial 17% global market share.
The Synergies
The major positive for NSN is the deal will enable it to score solid gains in the most lucrative U.S. wireless market where it was significantly lagging behind. In the first quarter fiscal 2010, these businesses generated revenues of $896 million and an operating income of $112 million.
Motorola has a strong CDMA business tie-up with Verizon Wireless (VZ) and WiMAX contracts with Sprint Nextel Corp. (S) and Clearwire Corp. (CLWR). NSN has already received some contract for supplying LTE equipments to AT&T (T) and T-mobile U.S. With this acquisition, NSN will become the third largest telecom network solutions provider in the U.S., after L.M. Ericsson AB (ERIC) and Alcatel-Lucent (ALU).
Globally, NSN currently holds second position with a market share of 21%. During 2009, NSN lost this position to the emerging Chinese giant Huawei Technologies. Although NSN regained its second position in the first quarter of 2010, Huawei is still breathing down its neck. After this acquisition, NSN’s position will be more consolidated. We believe NSN is now way ahead of other wireless network vendors except Ericsson, the undisputed market leader with a 39% global share.
Acquisition of Motorola’s wireless infrastructure businesses will also strengthen NSN’s position in Japan, China, and Asia-Pacific regions. In the first quarter 2010, 43% of Motorola’s total revenue from this segment came from Asia. Japan in particular will become a strong growth area for NSN.
The sole LTE contract of Motorola is with KDDI corp. of Japan. NSN has already secured an LTE deal from NTT DoCoMo (DCM). In China, the largest telecom operator China Mobile Ltd. (CHL) will now become a client of NSN for next-generation TD-LTE networks. The U.K –based global telecom giant Vodafone Group Plc. (VOD) is also an important client of Motorola.
The Challenges
Despite the above mentioned positive factors, we believe that this deal will also create some challenges for NSN which need to be tackled very carefully.
In mid 2009, NSN decided to concentrate on LTE as its 4G offerings instead of providing both LTE and WiMAX network solutions. But Motorola’s major 4G thrust is on WiMAX although recently the company had taken an initiative to gradually transform its WiMAX clients to TD-LTE networks. It remains to be seen how effectively NSN can complete this transformation.
NSN will need to integrate 7,500 staff of Motorola and its multiple product lines and supply chain system into its existing business model. NSN itself will cut 5,760 jobs as part of a major restructuring program. This will help the company reduce operating expenditures by around $732 million by the end of 2011. At this stage, how the company will profitably accommodate a large workforce of Motorola is a concern.
Our View
After considering all the positives and negatives of this deal, we believe this acquisition is likely to benefit NSN both in terms of profitability and cash flow generation in future. From early management has taken several steps to improve its financials. This helps the company win 15 LTE contacts throughout the world.
Acquisition of Motorola’s wireless network infrastructure businesses is expected to generate substantial revenue from CDMA networks (North America and Japan) which account for nearly 50% of the $82 billion global wireless network infrastructure business. NSN may also generate cost synergies by integrating its existing business facilities in Asia with the newly acquired Motorola facilities in this region.
We maintain our Neutral recommendation for Nokia. Currently it is a Zacks #3 Rank (Hold) stock. For Siemens, our current recommendation is Neutral supported by Zacks #3 Rank (Hold).
However, Motorola will keep its iDEN business and other selected assets and almost all the patents related to the wireless network infrastructure business. The deal is expected to close by the end 2010.
Motorola’s wireless infrastructure covers all of GSM, CDMA, and WCDMA networks as well as next-generation (4G) WiMAX and LTE networks. The company has agreements with more than 50 operators mainly in the U.S., Japan, and China. Although globally Motorola controls just about 3% market share, its WiMAX business commands a substantial 17% global market share.
The Synergies
The major positive for NSN is the deal will enable it to score solid gains in the most lucrative U.S. wireless market where it was significantly lagging behind. In the first quarter fiscal 2010, these businesses generated revenues of $896 million and an operating income of $112 million.
Motorola has a strong CDMA business tie-up with Verizon Wireless (VZ) and WiMAX contracts with Sprint Nextel Corp. (S) and Clearwire Corp. (CLWR). NSN has already received some contract for supplying LTE equipments to AT&T (T) and T-mobile U.S. With this acquisition, NSN will become the third largest telecom network solutions provider in the U.S., after L.M. Ericsson AB (ERIC) and Alcatel-Lucent (ALU).
Globally, NSN currently holds second position with a market share of 21%. During 2009, NSN lost this position to the emerging Chinese giant Huawei Technologies. Although NSN regained its second position in the first quarter of 2010, Huawei is still breathing down its neck. After this acquisition, NSN’s position will be more consolidated. We believe NSN is now way ahead of other wireless network vendors except Ericsson, the undisputed market leader with a 39% global share.
Acquisition of Motorola’s wireless infrastructure businesses will also strengthen NSN’s position in Japan, China, and Asia-Pacific regions. In the first quarter 2010, 43% of Motorola’s total revenue from this segment came from Asia. Japan in particular will become a strong growth area for NSN.
The sole LTE contract of Motorola is with KDDI corp. of Japan. NSN has already secured an LTE deal from NTT DoCoMo (DCM). In China, the largest telecom operator China Mobile Ltd. (CHL) will now become a client of NSN for next-generation TD-LTE networks. The U.K –based global telecom giant Vodafone Group Plc. (VOD) is also an important client of Motorola.
The Challenges
Despite the above mentioned positive factors, we believe that this deal will also create some challenges for NSN which need to be tackled very carefully.
In mid 2009, NSN decided to concentrate on LTE as its 4G offerings instead of providing both LTE and WiMAX network solutions. But Motorola’s major 4G thrust is on WiMAX although recently the company had taken an initiative to gradually transform its WiMAX clients to TD-LTE networks. It remains to be seen how effectively NSN can complete this transformation.
NSN will need to integrate 7,500 staff of Motorola and its multiple product lines and supply chain system into its existing business model. NSN itself will cut 5,760 jobs as part of a major restructuring program. This will help the company reduce operating expenditures by around $732 million by the end of 2011. At this stage, how the company will profitably accommodate a large workforce of Motorola is a concern.
Our View
After considering all the positives and negatives of this deal, we believe this acquisition is likely to benefit NSN both in terms of profitability and cash flow generation in future. From early management has taken several steps to improve its financials. This helps the company win 15 LTE contacts throughout the world.
Acquisition of Motorola’s wireless network infrastructure businesses is expected to generate substantial revenue from CDMA networks (North America and Japan) which account for nearly 50% of the $82 billion global wireless network infrastructure business. NSN may also generate cost synergies by integrating its existing business facilities in Asia with the newly acquired Motorola facilities in this region.
We maintain our Neutral recommendation for Nokia. Currently it is a Zacks #3 Rank (Hold) stock. For Siemens, our current recommendation is Neutral supported by Zacks #3 Rank (Hold).
Read the full analyst report on “NOK”
Read the full analyst report on “SI”
Read the full analyst report on “VZ”
Read the full analyst report on “S”
Read the full analyst report on “CLWR”
Read the full analyst report on “ERIC”
Read the full analyst report on “ALU”
Read the full analyst report on “T”
Read the full analyst report on “DCM”
Read the full analyst report on “CHL”
Read the full analyst report on “VOD”
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