NSN-MOTOROLA

NSN-MOTOROLA

Group 8:

Buda RitaCacciatori MatteoDe Vitis Bartolomeo Gallo MicheleGanucci EleonoraGualco LorenzoStevens Estee

1. Introduction

Problem: • NSN has a large geographical

presence but aims at becoming a more significant player in the United States

• Strengthening its foothold within the growing Asian market

Solution: pay attention to our presentation

2. Environmental Analysis –U.S.A Macroeconomic Analysis• Largest GDP in the world • Lower income tax rate:

promote investments in local employees and benefit for the majority of Americans

• Third most populous country • Recovery Act: investments in renewable sources and clean technologies

• President Obama’s agreement of 1.1 trillion dollars to restore the financial market

• President Obama’s purpose: make 4G technology available to more than 98% of Americans as quicker as possible

2. Environmental Analysis –Japan Macroeconomic Analysis• 3rd largest economy in 2010 • Majority population 15-64

• 10th most populated country in the world

• prominent technologic innovator

• 20th freest economy • minimal corruption

• low inflation 0,6% (2007-2009)

• real and intellectual property is well protected

• foreign direct investment is welcomed

• earthquake and tsunami have large negative impact

2. Industry Analysis

• Five Forces Analysis

−New Entrants: Low/Medium−Power of Suppliers: Medium−Power of Buyers: Medium/High−Substitutes: Low/Medium−Rivalry: High

• ILC: «shake-out» phase

−(CAGR: 6,5% - aggressive rivalry)−Constantly reshaping curve

2. Industry Analysis – Competitors

− Alcatel Lucent• «Bell Labs»• Inorganic growth; first to exit the crisis

− LM Ericsson• Market leader (36.9%)• Focus on core business

− Huawei Technologies• 3rd player in the market (17.9%)• International company• Influence of the Chinese government

3. Nokia Siemens Network

• Geographic differences: Europe (36.5%) vs America (6%)

• Resources & Competencies− Wide portfolio of IPR from its original companies− Increase R&D both internally and externally− Focus on innovation:

• Wireless and wireline communication solutions• Carrier Ethernet

− Importance of services and related softwares

3. NSN: Past Strategic Choices

• From market consolidation to expansion

• Technological development

• Acquisitions−Vivento Tech. Services−Atrica−Apertio−Juniper Networks−Huano−Nortel (LM Ericsson)−IRIS Telecom

4 Motorola: History and Organization

Mot

orol

a’s

appr

oach

sin

ce

its fo

unda

tion

in 1

928

is to

inno

vate

the

com

mun

icat

ions

and

elec

tron

ics

indu

stry

.

‘30s: first commercial radio

‘40s: two-way radio, iconic since World War II

‘50s: first commercial high-power transistor, rectangular tv tube – industry standard

‘70s-’80s: first portable cellular telephone and system, improving barcode lasers + Six Sigma, common language for quality management

Motorola

Markets served:

Devices

Network systems

Accessories

Software

Services

Resources & capabilities

Technological leadership

Best approach in sector to Wireless LANs

License to companies with feature deviations

Help desk sensors: problem identification + restoration

Motorola WIPS: reduction access points

Strong self-configuring software

4. Why did Motorola choose to let the network equipment business?

• One of few key players that did not split up operations yet :follow footsteps of other market leaders

• Main reason: pressure investors and stakeholders – increase market value by splitting up

• ‘Force’ a separate valuation of the cell phone and cable set-top boxes businesses from the remainder of the firm, mainly specialized in public-safety equipment and handheld scanners

5. NSN-Motorola – Original Acquisition Package

Main industry characteristics and trends:• Industry consolidation - 3 main European vendors: NSN, Ericsson & Alcatel-Lucent,

• Intensification of Chinese vendors as Huawei or ZTE (low costs).

• Part of Nortel’s business sold to Ericsson through bankruptcy auction

July 19, 2010 - Original Acquisition / Agreement:• NSN will acquire majority of Motorola’s wireless network infrastructure assets for

$1.2 billion cash:• WCDMA, CDMA, LTE, GSM & WiMAX,• 7500 employees & assets in 63 countries

• Post-acquisition expectations:• Motorola was expected to keep its technological patents, while,• NSN was granted the right to use those patents via a cross-licensing

agreement. • With the acquisition NSN was expected to:

• strengthen market position: 2nd (chased by Huawei)& add new customers (US, Japan),

• strengthen global position (Motorola’s products and technologies those in which it had strong market/strong global position),

• relationships-related advantages.

5. NSN-Motorola – Challenges to the Deal

…but all that glitters is not gold: Lack of approval by Chinese antitrust authority; why?:

Central issues behind Chinese authority’s opposition relate mostly to Huawei’s presence in the market:

•Huawei’s aim was to expand globally (Motorola and Nortel),•January 24, 2011: Huawei sued Motorola for its conduct (related to NSN’s acquisition).•The two entered some agreements in 2000 that allowed Motorola to sell some of Huawei’s network technologies under its brand. •Motorola knows some of Huawei's confidential information •The acquisition doesn’t assure that this info isn’t transferred to NSN.

5. NSN-Motorola

Acquisition’s Evolution (2011):

• February 22 - Federal court order:

• Motorola couldn’t disclose GSM technology patented by Huawei to NSN, however

• the court rejected Huawei’s request to block NSN’s acquisition,

• March - Chinese antitrust authority extended the review period (60 days),

• April 13 - Huawei and Motorola settled all the litigations + new agreement = Motorola accepted to pay a fee to allow NSN to use the confidential information that were part of the arrangements among Huawei and Motorola,

• April 13, Motorola announced reduction in sales price from $1.2 billion to $975 mill.,

• April 21 – Chinese antitrust authority gave an “unconditional approval” to the deal.

5. NSN-Motorola

• April 29 – NSN and Motorola announced the completion of the acquisition –

Final and official terms of the acquisition:

• NSN paid $975 million in cash,

• Transfer about 6900 employees to NSN (compared to 7500 initially announced),

• Takes on responsibility for 50 operator customers in 52 countries,

• NSN took on responsibility for Motorola Solutions’ GSM, CDMA, WCDMA, WiMAX and LTE products and technologies.

6. Future Developments & Industry Implications

• In the past years NSN was strongly driving the market in the EU and the Asia Pacific-region

• However lagging behind competitors in the American markets.

• Throughout the years 2008, 2009 and 2010 however it witnessed a chipping away of its revenue streams and Loss in Market Share

Attributable to:

1. Strengthening worldwide and particularly in the North American market of LM Ericsson

2. Strong competition of EU players such as Alcatell-Lucent3. Rising strength of Chinese based firm Huawei

Technologies Co.

6. Future Developments & Industry Implications

6. Future Developments & Industry Implications

Solutions:

1. Focus on Quality and After-sale Services to combat the threat of low cost competitors such as Huawei Technologies Co.

2. Lower the Cost Structure3. Invest Heavily in R&D to obtain tech. know-how on

future technologies such as LTE (4G)4. Drive Sales by entering new markets in which NSN

was traditionally weak, such as North America.

ORGANIC vs INORGANIC

6. Future Developments & Industry Implications

The Acquisition:

1. Will lower the cost structure through cost synergies

2. Will increase NSN’s tech. know-how as the package includes a number of R&D facilities in the United States, Russia, UK, India and China.

3. Drive Sales as Approx. 50 operator customers in 52 countries will come under the responsibility on NSN.

6. Future Developments & Industry Implications

So what does this imply for NSN and its Competitors?

6. Future Developments & Industry Implications

SO WHERE DOES THIS LEAD TO IN FINANCIAL TERMS?

Historical financial return of NSN

7. Financial Impact of the acquisition

NSN’s Financial and non-Financial Needs

Historic financial return of Motorola Assets held for sales

Underlying Assumptions for Future Estimation

1. Tax rate = 26%2. NSN growth rate 2011-2015 = 8%

•7.4 Financial Conclusion

Due to the cost structure the NSN stand alone EBIT for the future would remain negative

While for Motorola:

1. As the assets will be integrated with the original NSN assets the same growth rate of 8% has been applied for Motorola

Finally we can see the financial impact of the acquisition:1. With the new assets NSN expects cost synergies through a

lowering of COGS to obtain an Operating Margin of 4%2. Thus COGS will have to fall until a gross margin of 35.5% is

achieved

7. Financial Impact of the acquisition

This allows us to calculate the expected amount of synergies:

8. BCG Matrix

9. Conclusions

1. Streathening NSN’s position in the traditional markets of Europe, Japan and Asia-Pacific.

2. Possibility of entering new markets such as North America.

3. NSN is now strengthened by the Patents/Technological know-how, R&D facilities and Customer base ex-Motorola.

4. Possibility to take a leading role in the development and application of future technologies such as LTE.

5. Combat the loss of market share

6. Distance it from the rising upstart Huawei Technologies Co.

Drive the needed turnaround in Profitability!!

AND LAST BUT NOT LEAST!

THANK YOU!!