Many in the industry peg iDEN handset vendor Motorola Inc. as a major winner following the merger between Sprint and Nextel Communications Inc. Motorola’s position is enviable as the company also has managed to capitalize on the merger between Cingular Wireless L.L.C. and AT&T Wireless Services Inc. with the sale of several devices that are exclusive to the newly combined carrier.
Indeed, Motorola appears to be riding a wave of positivity on Wall Street. The company’s stock has been tracking slowly upward over the past few months, and analysts polled by Thomson First Call predict the company will report revenues of $8.81 billion in the fourth quarter, up from the $8 billion it reported in the same quarter a year ago. Almost 50 percent of Motorola’s sales come from its handset business.
“I think Motorola is the winner here because they have a new big account called Sprint,” said Bob Egan, head of consulting firm Mobile Competency. “It’s a big win for Motorola.”
For more than a decade Motorola has supplied nearly all of Nextel’s handsets, which operate on Motorola’s iDEN technology. Today, the only other iDEN handset supplier is BlackBerry-maker Research In Motion Ltd., which licenses iDEN technology from Motorola. Further, Motorola recently announced it will continue to supply iDEN handsets to Nextel through 2007.
“The iDEN network is not going to go away any time soon,” Egan said.
Thus, a combination of Sprint and Nextel will rely heavily on support and handsets from Motorola. Indeed, carrier executives promised that Motorola would provide a dual-mode CDMA/iDEN handset that would cross the gap between the carriers’ disparate network technologies. If one of Sprint’s handset suppliers, such as Sanyo or Samsung Electronics Co. Ltd., were to also provide dual-mode handsets, they would have to license iDEN from Motorola.
In addition, the merger likely will give Motorola a foot in the door at Sprint. The carrier currently relies on a small number of handset suppliers, notably Audiovox (now part of UTStarcom), Sanyo and Samsung. Sprint also offers devices from the likes of LG Electronics Co. Ltd., Nokia Corp. and PalmOne Inc. Sprint only carries one Motorola handset, the clamshell-style V60v, but a merger with iDEN-proponent Nextel likely will put Sprint and Motorola in close company.
“Naturally I think Motorola will be a supplier of the combined company,” Egan said.
Down the road, Motorola may be able to supply a significant number of handsets to the combined Sprint/Nextel (which industry watchers have affectionately dubbed “Sextel”). As Sprint and Nextel work to offer a combined CDMA EV-DO network, Motorola may be able to score a significant chunk of the handset business. Motorola already sells some EV-DO devices in South Korea.
“We believe Motorola is making efforts to improve its relationship with Sprint PCS from a product standpoint and could potentially benefit from the Sprint-Nextel merger on the CDMA front,” wrote UBS in a note to investors.
Motorola recently managed to bulk up its product offerings through Verizon Wireless with the recent release of the V710 and V265. The company also scored a major deal with Cingular Wireless that makes the carrier the exclusive provider of Motorola’s high-end V3 Razr phone. The phone has garnered significant industry acclaim and Cingular is heavily promoting it-the phone even has it’s own series of TV commercials. If Motorola ends up cashing in on the proposed Nextel/Sprint merger as it expects to, the company could significantly boost its presence in the U.S. market.
Motorola “has been at the right place at the right time,” Egan said.
