After Ericsson’s 70% drop in quarterly profit, announced last week, the wireless equipment sector is jittery, despite the strong performance of Nokia Siemens. Alcatel-Lucent, whose own merger teething troubles are proving less easy to overcome than NSN’s, is talking up the growth of its services business and shifting its focus in anticipation of second quarter losses, while Motorola is reorganizing its infrastructure division to ease its planned break-up and make some units easier to sell in future.
Motorola has been through a series of reorganizations over the past few years, and recently has been gearing up for the spin-off of its handset business, which although still its largest, is dragging down the other activities with losses and declining market share. However, since giving into the demands of activist shareholder Carl Icahn to separate handsets, Motorola has been in limbo, with the markets waiting for action, and the further reshuffle of the second largest division, christened Home and Networks Mobility in the last round of changes, could be designed to signal that there is a strategy and that decisive moves are round the corner.
More details of the break-up plan are expected to be revealed along with the company’s results on Thursday, but in the meantime, many investors are disappointed that no credible buyer has emerged for the handset division ‘ although spin-off, rather than sale, is Moto’s avowed preference, it is widely thought that sale would be an easier road to tread. Without the supporting businesses – which in happier times gave Motorola an attractive end-to-end communications story spanning devices, networks, home systems and enterprise wireless ‘ the devices will lose another of their competitive advantages and it will be increasingly hard to survive against Nokia as a standalone operation with little value add.
The Home and Networks Mobility arm has, on paper at least, better chances of being competitive on its own terms, and the new structure does rationalize its various product ranges, which aim to span all the elements of the quad play for wireless, cable and converged operators, including wireless infrastructure, set-top boxes and home networks. (The third major unit includes enterprise and public safety gear.) Under the new pattern, the division, which had revenues of $2.4bn in the first quarter, is arranged in three distinct business units, bringing greater clarity to the mass of diverse products.
The first includes cable set-top boxes as well as other equipment for digital video, IPTV and modems. It will be led by John Burke, who currently oversees the cable set-top business, the world’s largest by sales.
The other two subdivisions derive from the original wireless infrastructure business. One is cellular networks, and will be led by Fred Wright, a key Motorola veteran, focusing on traditional cellco equipment. The other is broadband access solutions, which will focus on next generation networks like WiMAX and LTE. This will be headed up by Dan Moloney, the overall head of Home and Networks Mobility, until a permanent chief is announced.
Dan Coombes, who was senior VP for wireless broadband systems, will become an adviser to Moloney.
As well as adding some clarity and sense of order to the existing structure, the new pattern is likely to be geared to possible sale of one or more product lines. Some analysts are even looking for a reverse spin-off, with Motorola keeping handsets and selling off the other businesses, which are profitable and would more easily find buyers. The proceeds could then fund a radical overhaul of the cellphone unit to bring it into line with Samsung and LG again ‘ major investments in channel, brand marketing, device design including touchscreens, and software would be required, not to mention a topnotch turnaround CEO (the quest for a head for the handset unit has so far been fruitless and is further denting confidence in the break-up plan).
Companies like Cisco, Ericsson, Nokia Siemens or Huawei, all of which might be interested in individual portions of Motorola’s networks business, would be more likely to bid for specific portions than the whole diverse home and networks mobility unit.
Motorola continues to insist it is focused on internal recovery and organic growth rather than full break-up. Its memo to employees said that “these changes are not a reaction to Motorola’s separation plans or a cost cutting measure’ but that “it’s time to position our business for continued success over the next five years.” A spokesperson commented that the new structure will ‘ensure that Home and Networks Mobility remains agile, focused and ideally aligned to realize its growth potential.”