Motorola Makes Quantum Leap in Fiber Buy

Retooling wireless giant Motorola (MOT) is hoping a gamble on optical gear will light up sales in its broadband division.

The Schaumburg, Ill., tech shop agreed to pay an undisclosed amount of cash for closely held Quantum Bridge, a 70-employee fiber optic systems maker based in Andover, Mass. The move would enable Motorola to offer Quantum Bridge's so-called fiber-to-the-premises equipment to phone and cable companies.

On Tuesday, Motorola slipped a quarter, to $17.33. The stock has more than doubled off its year-ago low as investors have started betting on an uptick in telecom industry capital spending.

Investors got a charge late last year when big Bells such as Verizon ( VZ) and SBC ( SBC) said they intend to use fiber-optic lines instead of copper cable as a future access path to homes and businesses. The fiber connections could one day enable phone companies to sell TV, Internet and calling services -- the fabled triple play of telecom.

The hoopla surrounding the dramatic shift in technology caused stocks such as fiber maker Corning ( GLW) and optical-equipment maker AFC ( AFCI) to surge last year. But as analysts point out, the Bells' spending on fiber expansion will be modest in the near term and confined largely to wiring key buildings and new subdivisions.

The move comes as Motorola seeks to revamp its offerings with new chief Ed Zander at the helm. The company was once the standard bearer in wireless technology, but it has done little but sputter in recent years. The continual fumbling of its cell-phone leadership and the lack of customers for its wireless infrastructure upgrade technology helped run former CEO Chris Galvin out the door last year and helped set the stage for increased focus on broadband.

In recent months, Verizon has named several suppliers for fiber and optical gear, clearing the way for an actual purchase contract at some future date. AFC was chosen as Verizon's main vendor for the equipment.

Motorola was a contender for the Verizon list, but it didn't make the cut, says Telecom Pragmatics analyst Sam Greenholtz.

"So this makes a lot of sense. I can see it being a big positive for Motorola," says Greenholtz of the Quantum Bridge acquisition.

There are likely to be other optical opportunities for Motorola, say analysts.

"In wire-line technology, fiber will be one of the largest areas of capital spending, so I think they are targeting the right growth market," says Joanna Makris, an analyst at Adams Harkness & Hill.

Beyond the Bells, cable companies and smaller, independent telcos could also shop for fiber access gear, says Makris.

The challenge now for Motorola is to go "head on" with players such as Alcatel ( ALA) and AFC, which have better track records in that business, says Makris, who has a neutral rating on AFC. Adams Harkness has no underwriting ties to AFC or Motorola.

Quantum Bridge has several small customers, but analysts say the company lacked the leverage and balance sheet to win larger gigs. Signing on with Motorola was the "only way to get contracts at the Bells," says Makris.

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