Motorola Faces Chip Ban

Some observers see a new hurdle to a handset unit recovery.
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Motorola's (MOT) recovery looks a little more challenging after its 3G chip supplier Qualcomm (QCOM) - Get Report gets hit with an import ban.

Already late to the third-generation wireless phone race, Motorola can only hope Qualcomm wins its pending appeal of the U.S. International Trade Commission decision Thursday. The ITC decided to enforce a ruling that found Qualcomm had infringed on a

Broadcom

(BRCM)

patent, and imposed a ban on imports of Qualcomm's 3G products.

The ruling allows imports of existing phones using the infringing chips, but it will prevent any imports of new phones that use Qualcomm 3G chips. Among the new phones affected if the ban is upheld is the very important Razr 2 phone that is expected to be the flagship of Motorola's handset resurgence.

Some observers say the ban adds more worry to the woes already hanging over Motorola. The timing of a 3G hiccup certainly isn't good. Investors had begun to view Motorola as a once stumbling wireless tech titan that was finally getting ready to regain its stride.

"Motorola appears cheap, but we believe it could take a year to substantially improve the company's handset portfolio," writes Jefferies analyst Bill Choi in a research note Friday titled, "The Grinch Who Stole Christmas Phones."

Choi and other industry analysts say the Qualcomm chip ban comes at a tricky time in the mobile phone calendar.

The big event of the year -- the arrival of

Apple's

(AAPL) - Get Report

iPhone -- has already captured the market's imagination. Yet unlike so many of the new phones due out later this year, the iPhone is not 3G and so will not suffer from any holdup in Qualcomm supplies.

While fortunate for Apple and

AT&T

(T) - Get Report

, this doesn't bode well for potential

iPhone killers like LG's Prada phone for

Verizon

(VZ) - Get Report

and Motorola's new line-up, say analysts.

"The ramifications are significant and span not only second half phone sales in the U.S. for Motorola, Samsung and LG," Choi writes, "but also competitiveness of large carriers Verizon and

Sprint

(S) - Get Report

."

Others see a glimmer of hope if Qualcomm can sidestep this latest setback.

Qualcomm shares rose after the ban was announced as investors saw the ruling as less harmful than expected.

The reason, say analysts, is that Qualcomm is already in full legal battle mode. It is likely that the San Diego tech shop could prevail in a lengthy appeal. It also could develop a potential work-around solution to the Broadcom conflict or possibly strike a licensing agreement with Broadcom.

Motorola shares rose 14 cents to $17.83 and Qualcomm was up 75 cents to $41.77 in midday trading Friday.