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NSN-MOTOROLA

NSN-MOTOROLA. Group 8: Buda Rita Cacciatori Matteo De Vitis Bartolomeo Gallo Michele Ganucci Eleonora Gualco Lorenzo Stevens Estee. 1. Introduction. Problem: NSN has a large geographical presence but aims at becoming a more significant player in the United States

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NSN-MOTOROLA

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  1. NSN-MOTOROLA Group 8: Buda Rita Cacciatori Matteo De Vitis Bartolomeo Gallo Michele Ganucci Eleonora Gualco Lorenzo Stevens Estee

  2. 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 

  3. 2. Environmental Analysis –U.S.A Macroeconomic Analysis

  4. 2. Environmental Analysis –Japan Macroeconomic Analysis

  5. 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

  6. 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

  7. 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

  8. 3. NSN: Past Strategic Choices From market consolidationtoexpansion Technologicaldevelopment Acquisitions ViventoTech. Services −Atrica −Apertio −Juniper Networks −Huano −Nortel (LM Ericsson) −IRIS Telecom

  9. 4 Motorola: History and Organization Motorola’s approach since its foundation in 1928 is to innovate the communications and electronics industry. • ‘30s: first commercial radio • ‘40s: two-way radio, iconicsince 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

  10. Motorola Markets served: • Devices • Network systems • Accessories • Software • Services Resources & capabilities • Technologicalleadership • Best approach in sector to WirelessLANs • License to companieswith feature deviations • Help desk sensors: problemidentification + restoration • Motorola WIPS: reductionaccesspoints • Strong self-configuring software

  11. 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

  12. 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.

  13. 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.

  14. 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.

  15. 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, WiMAXand LTE products and technologies.

  16. 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

  17. 6. Future Developments & Industry Implications Attributable to: Strengthening worldwide and particularly in the North American market of LM Ericsson Strong competition of EU players such as Alcatell-Lucent Rising strength of Chinese based firm Huawei Technologies Co.

  18. 6. Future Developments & Industry Implications • Solutions: • Focus on Quality and After-sale Services to combat the threat of low cost competitors such as Huawei Technologies Co. • Lower the Cost Structure • Invest Heavily in R&D to obtain tech. know-how on future technologies such as LTE (4G) • Drive Sales by entering new markets in which NSN was traditionally weak, such as North America. • ORGANIC vs INORGANIC

  19. 6. Future Developments & Industry Implications • The Acquisition: • Will lower the cost structure through cost synergies • 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. • Drive Sales as Approx. 50 operator customers in 52 countries will come under the responsibility on NSN.

  20. 6. Future Developments & Industry Implications • So what does this imply for NSN and its Competitors?

  21. 6. Future Developments & Industry Implications SO WHERE DOES THIS LEAD TO IN FINANCIAL TERMS?

  22. Historical financial return of NSN

  23. 7. Financial Impact of the acquisition NSN’s Financial and non-Financial Needs

  24. Historic financial return of Motorola Assets held for sales

  25. Underlying Assumptions for Future Estimation Tax rate = 26% NSN growth rate 2011-2015 = 8%

  26. 7.4 Financial Conclusion • Due to the cost structure the NSN stand alone EBIT for the future would remain negative

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

  28. Finally we can see the financial impact of the acquisition: With the new assets NSN expects cost synergies through a lowering of COGS to obtain an Operating Margin of 4% Thus COGS will have to fall until a gross margin of 35.5% is achieved

  29. 7. Financial Impact of the acquisition This allows us to calculate the expected amount of synergies:

  30. 8. BCG Matrix

  31. 9. Conclusions Streathening NSN’s position in the traditional markets of Europe, Japan and Asia-Pacific. Possibility of entering new markets such as North America. NSN is now strengthened by the Patents/Technological know-how, R&D facilities and Customer base ex-Motorola. Possibility to take a leading role in the development and application of future technologies such as LTE. Combat the loss of market share Distance it from the rising upstart Huawei Technologies Co. Drive the needed turnaround in Profitability!!

  32. AND LAST BUT NOT LEAST! THANK YOU!!

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