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Motorola in Talks to Sell Unit to Nortel
NEW YORK (Reuters) - Motorola Inc. (news/quote) (MOT.N) is in talks with Nortel Networks (news/quote) Inc. (NT.N)(NT.TO) to combine the two companies' wireless network equipment businesses, BusinessWeek said in its latest edition.
Motorola's $6.5 billion wireless networks division -- which makes the antennae and other equipment used to operate wireless networks -- lost $1.4 billion in 2001.
Citing talks between Motorola's President Ed Breen and top Nortel executives, BusinessWeek said the two companies are exploring a range of options, including the possibility of Nortel's $5.7 billion wireless unit buying Motorola's wireless division and the combined company being spun out as an independent business.
BusinessWeek said a Motorola executive and former executives from the two companies were sources for its report.
Motorola spokesman Scott Wyman declined to comment on a specific deal with Nortel, adding that: ``Everyone in the industry is talking to everyone else.''
A Nortel spokesman said they do not comment on rumors or speculation.
One analyst said that Motorola and Nortel would not be considering combining their wireless network units if the business environment were brighter.
``If the market was strong, they wouldn't be considering this,'' said independent telecoms equipment analyst Tom Lauria.
``I don't think it should be necessary. It more reflects the dire situation both companies find themselves in.''
Motorola's wireless networks division has been falling behind in the race for contracts to build out next-generation wireless networks, the report said.
Last year, rivals Ericsson (news/quote) (ERICb.ST) and Nokia Corp. (news/quote) (NOK.N) won big deals to provide equipment to wireless telecoms carriers Cingular Wireless and AT&T Wireless Services, the No. 3 wireless company in the U.S.
Shawn Campbell, an analyst with Northern Trust Corp. (news/quote)'s asset management arm, which holds both Nortel and Motorola stock, said it would make a lot of sense for Motorola to bow out of the sector.
``They've been kind of marginalized. Nokia and Ericsson are winning most of the contracts, with Nortel right behind them, and all the other players fighting for scraps,'' he told Reuters.
``Motorola has got to do something with that business, and the best option is to sell it.''
Campbell said if the wireless infrastructure arm is sold it might indicate a willingness to also part with the firm's money-losing semiconductor business, a moved advocated by many analysts.
Motorola's Breen in February told investors there were no ''sacred cows'' at the wireless technology giant and that ``if it doesn't meet our objectives, it's not going to be a part of our portfolio.''
``It would make great sense for Motorola. There's not much hope that the (wireless infrastructure) market is going to pick up to support even half the players,'' said Ed Snyder, wireless equipment analyst with J.P. Morgan.
Snyder said Motorola's Breen would be ``a hero'' if he could dispose of the money losing unit and generate cash in the process. But he said the division as a whole would likely sell for less than $4 billion and Motorola might be better off selling just some parts of its.
The question remains about how Nortel Networks would support such a transaction. Shares in the Brampton, Ontario-based telecoms equipment maker this week sank to a 7-year low on a barrage of analyst downgrades, stemming from concern about a lack of spending by key customers.
Earlier this month, Moody's Investors Service cut Nortel's credit ratings to one notch above ``junk'' status.
Nortel shares closed up 32 Canadian cents at C$7.52 in Toronto on Thursday prior to news of the BusinessWeek article. Motorola shares closed up 28 cents at $13.50.
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