recently announced the sale of most of its wireless networking equipment businesses to
for $1.2 billion in cash. This transaction is expected to close by the end of 2010.
We think this was a smart move by Motorola. The company's wireless network equipment sales declined from $6.2 billion in 2005 to $4.1 billion in 2009, and seemed unlikely to recover.
The sale leaves Motorola with a stockpile of cash it can invest in its core mobile phone business, where it faces fierce competition from
, Nokia and others. Our analysis follows below.
Prior to this transaction, we believed that Motorola's mobile phone market share would continue to decline, from 4.45% in 2009 to 1.50% by the end of the Trefis forecast period.
However, the Nokia transaction gives Motorola $1.2 billion to invest in mobile phone R&D and sales support (selling, general and administrative expenses) next year and boost the company's total spend on indirect expenses to $5.7 billion.
Based on Motorola's success in launching innovative, popular smartphones like the Droid over the past two years, we believe that this additional investment could potentially boost the company's mobile phone market share to 3.5% in 2011, instead of the 2.2% that we forecast.
This scenario could yield an upside of 20% to the
Need to Innovate
Like all smartphone producers, Motorola must innovate to survive. Competitors like Apple, Nokia and
Research in Motion
are constantly releasing new software and hardware features as they fight for share in a highly competitive market.
Motorola started selling smartphones in November 2009, when it was struggling with operating losses. But its Droid smartphone proved to be instant hit: Motorola sold 1million units in the first 74 days of the Droid launch.
Motorola followed this success with the Cliq and Devour smartphones, both based on Google's Android operating system. And the company recently launched Droid X, which is considered a strong competitor to Apple's iPhone 4.
We believe Motorola must invest more in its mobile phone business if it wants to stay competitive with Apple and the rest. This transaction gives them an excellent opportunity to do just that.
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