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Who Wants Motorolas Device Business?

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Losing Share, Bleeding Profit but Still a good bet?

Motorola’s announcement that it will examine the realignment of its Mobile Device Business unit is the latest in a long list of partnership announcements in the high volume, high R&D, volatile margin handset business, after Sony-Ericsson, Casio-Hitachi, Panasonic-NEC and most recently, Kyocera-Sanyo.

Although this announcement is sure to set off a frenzy of M&A speculation, an outright acquisition is highly unlikely. Any potential partnership should look at key factors, such as who would benefit most from a link with the falling star with still strong North American assets–but a weak 3G portfolio?

There are, in truth, few handset vendors that can afford the price tag and the lessons from previous mergers; and joint ventures are inconclusive at best. Lessons can be learned from successful ventures like Sony Ericsson, as well as abysmal failures such as Benq-Siemens.

So who might want Motorola’s handset business? The shortest odds might be offered on full service infrastructure vendors from Asia, while a minority position from someone who, unlike Motorola, knows how to do software is also a solid bet.

David Kerr, Vice President of the Global Wireless Practice at Strategy Analytics, stated, “Motorola’s most critical problem has been an inability to match R&D cycles with commercial product cycles and a tendency to look for the homerun ball rather than getting on base. The last few occasions where we have seen a major vendor delay product introductions and miss new product cycles have ultimately resulted in consolidation. There are no quick fixes to a long neglected product portfolio. Recent rumors of strong Chinese interest make sense only if ZTE, Huawei and others have short memories or are not familiar with the Benq-Siemens fiasco.”

Bonny Joy, Analyst at Strategy Analytics, added, “This announcement underscores the fact that the troubles at Motorola’s device business unit are indeed deep-rooted in product design with no reserves in the pipeline; making shift changes such as the recent management shuffle alone could not contain the recent decline in revenues and shipments. Any potential partnership should set priorities in filling Motorola’s product gaps in mid-tier, high-end and 3G product lines.”

The Strategy Analytics Wireless Device Strategies team will be preparing an analysis of strategic options in the coming days for our annual contract clients. Clients may send their questions to wireless@strategyanalytics.com or contact the Strategy Analytics analysts directly.

About Strategy Analytics:
Strategy Analytics, Inc., a global research and consulting firm, provides timely insights and strategic business solutions to companies operating at the convergence of information, communications and entertainment technologies. With worldwide headquarters in Newton, MA, and principal offices in England, France and Germany, Strategy Analytics focuses on market opportunities and challenges in the areas of Automotive Electronics, Broadband, Telematics, Wireless Strategies and Enabling Technologies. For more information, see http://www.strategyanalytics.com.

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