Nokia Siemens to Buy Motorola’s Network Biz

Almost ten years ago, I read a research report by a financial analyst — I can’t remember his name, though I distinctly remember what he predicted — who said that in ten years the wireless hardware business would consolidate around Ericsson and Nokia, which would own Motorola and Nortel. Of course, like many on Wall Street, he didn’t see Huawei coming. But his predictions are indeed coming true.

Earlier today, Espoo, Finland-based Nokia Siemens Networks, a company created by the merger of Siemens’ and Nokia’s networking business announced that it would acquire Motorola’s wireless infrastructure networking business for about $1.2 billion in cash. Motorola isn’t selling the iDen business, which is a key technology used by U.S. government agencies, nor is it selling most of its wireless network infrastructure patents. However, NokiaSiemens Networks will inherit about 7,500 Motorola employees.

For Nokia Siemens Networks, the deal allows it get a bigger traction in two key markets — the United States and Japan. With the deal it becomes the third largest infrastructure provider in U.S. and second largest in the world. It will now be the top gear provider in Japan. NSN also gets access to the CDMA business and about 50 carriers including Sprint, Verizon and Vodafone. NSN also gets hold of Motorola’s WiMAX business, which has 41 deals in 22 countries. The deal should close by the end of this year.

The U.S. and Japan might be great markets for now, but the long term growth for companies like Ericsson and NSN are in emerging markets such as those in Brazil, India and on the African continent. In those markets, wireless gear makers have to contend with low-cost competition from the Chinese. NSN is fighting an uphill battle, and is finding itself in tough competition with Huawei and Ericsson, and from that perspective alone, the $1.2 billion price tag is a bargain, theorizes Mark Sue, an analyst with RBC Capital Markets in a note to his clients. The purchase price represents an EV/Sales multiple of just 0.31 times the FY10 revenue, Sue says.