NSN acquires Motorola - Analysis

Motorola's Revenue for Networks

2009				2010
Q1	Q2	Q3	Q4	Q1
$966 million	$1.0 billion	$1.1 billion	$964 million	$896 million

Total Revenue for 2009: $4.03 billion (approx)

Network group comprises:

1. Cable Broadband

2. Cellular Networks – includes iDEN

3. LTE – Long Term Evolution

4. Private Broadband Networks

5. Telco Broadband Networks

6. Wireless Broadband Networks - WiMax

7. Wireless LAN

8. Wireless LAN Security

WiMAX revenue in 2009 was $600 million

· Shipped 1 million WiMAX device (CPE and dongles)

· Shipped 10,000 WiMAX Access Point Base Site

Motorola will keep:

· $150 million in accounts receivable, cash and some other assets (assuming it is related to Networks)

· Technology it developed called iDEN. It generated $400 million of the Networks business’

· Wireless infrastructure-related intellectual property (IPR).

1. Net revenue of the group that NSN acquires:

= $4.03 billion - $150 million - $400 million

= 3.48 billion

2. NSN paid $1.2 billion to acquire

3. NSN pays 0.34 times annual revenue

Essentially many products overlap. WiMAX is welcome but paying $1.2 billion for a $600 million revenue business raises questions.

Basically the money spent on this acquisition is for customers, geographical diversity and the opportunity to cross sell in the future. Future developments will give a better picture on the value created.

Nokia Siemens Networks acquires Motorola

July 19, 2010: Telecom equipment vendor Nokia Siemens Networks (NSN) unveiled a deal to pay $1.2 billion for the majority of U.S.-based Motorola Inc.'s network equipment business

History: Nokia Siemens Network’s formation was announced on 19 June 2006. Nokia Siemens Networks was officially launched at the 3GSM World Congress in Barcelona in February 2007

Acquisition: Initial Analysis

NSN Story

• Gains foothold in North America, Japan, and China
• Gets access to WiMAX (Worldwide Interoperability for Microwave Access) technology and CDMA technology. Currently, NSN had no foothold.
• Gains 50 new relationships. Opens up the ability to cross-sell
• Emerging Market: Gives NSN an advantage in India - having both (WiMAX & LTE) options for BWA (Broadband Wireless Access) implementation

Motorola Story:

• Gets a valuation of about 0.3 to 0.5 of revenue
• Able to get rid of a business which was losing market share and was lacking in technology.
• Concrete on its jewels (Enterprise Mobility & Set top boxes). Increase the value to its shareholders

Risks for NSN:

• Which product does NSN concentrate on for next generation? It has two products one from Motorola and another from NSN that can possibly conflict based on features/ability. Motorola offers a migration path from WiMax-to-LTE whereas NSN product lacks this ability.
• Motorola: converged platform, the WiMAX Evolution – Single RAN, which supports 802.16e (mobile WiMax), 802.16e Enhanced, 802.16m (WiMax 2.0), and LTE
• NSN: single radio access platform, the Flexi Multiradio Base Station (BTS), that supports TD-LTE
• What happens to the existing customers who are on WiMAX? Do they move to WiMAX 2.0 or are they forced to move to TD-LTE (Long Term Evolution Time Division Duplex)? There are 41 customers in 21 countries that can get impacted.
• Among other integration issues, what happens to the two research teams? I am not getting into integration issues among other teams/groups. This one seems to be the most pertinent at this time.

Stock Movement:

• Nokia's stock started higher but ended the day at a gain of approx 4%
• SI stock ended the day losing at about -2%
• Motorola stock showed a gain of 12% at the end of the day