Motorola may have tough time selling mobile unit

By Sinead Carew - Analysis

NEW YORK (Reuters) - Motorola Inc (MOT.N) has essentially put its mobile phone unit up for sale, but the company is unlikely to be able to seal a deal any time soon despite a plethora of possible buyers.

Analysts say Motorola's Thursday announcement that it is reviewing strategic options including splitting off its phone unit will draw interest from consumer electronic makers from China to Sweden. They cited Dell Inc (DELL.O), Samsung Electronics (005930.KS), Huawei HWT.UL and Sony Ericsson among the list of potential buyers.

However, analysts also point to problems with everyone on that list, ranging from a lack of acquisition history to complex ownership structures and available funds.

"It's really difficult to see that large vendors would buy it. They would have to pay extra for brand, something they already have. And they are all winning market share without buying" the Motorola unit, said Hannu Rauhala an analyst at OKO Bank in Helsinki.

Take South Korea's Samsung, which won the mantle of the second largest handset maker from Motorola in 2007. It could buy Motorola's phone business as a quick way to boost market share, especially in the United States where it is still the market leader.

But analysts in Korea were skeptical. "Samsung is fundamentally uninterested in (mergers). They'd much rather develop products or divisions on their own," said Lee Min-hee, an analyst at Dongbu Securities.

As for LG Electronics (066570.KS), which ranks fifth, Lee said, "It doesn't look like they would have the funds for such an acquisition."

Analysts value Motorola's loss-making phone unit at between $9 billion and $12 billion, which would be less than two-thirds of its 2007 mobile sales. That may look cheap beside market leader Nokia (NOK1V.HE), whose shares imply a valuation of about twice its 2007 handset revenue, said CreditSights analyst Ping Zhao.

But she noted that Nokia has four times more handset market share than Motorola and is highly profitable, whereas Motorola's mobile unit has suffered losses in the past year.

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Whoever picks up Motorola's mobile phone unit will have to contend with its lack of an exciting new phone line and the unit's financial troubles, but also will gain a well-known brand in a period of strong growth for cell phones.

Strategy Analytics analyst Neil Mawston sees worldwide revenue from cell phones rising 5 percent to $147.6 billion in 2008, with volumes rising 10 percent to 1.24 billion.

With phone sales dwarfing PC volumes and as smart phones with computer-like features gain in popularity, several industry watchers see Dell as a possible suitor.

"Dell could use the Motorola business to continue its diversification into the consumer space with new but related products," CCS Insight analyst Shaun Collins said.

Dell, which hired Ron Garriques when he left his job as head of Motorola's mobile unit last year, declined comment.