Motorola may have tough time selling mobile unit

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.

GOODBYE MOTO, HELLO DELLPHONE?

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.

Apple Inc's (AAPL.O) successful entry into the phone market last year with its much-lauded iPhone has made the category even more appealing to Dell and Hewlett-Packard (HPQ.N).

But since the majority of Motorola products are not smart phones, a purchase of its mobile unit would be more of a hindrance than a help for a PC maker, one analyst said.

"There's a lot of interest in the smart phone market from Dell and HP's perspective, not a lot of interest in the legacy handset market," said Pacific Crest analyst Brent, "It's not about money it would just be a bad business."

DANGEROUS MARKET

A Motorola deal could a boost number 4 ranked Sony Ericsson, a venture of Sony (6758.T) and Ericsson(ERICb.ST). It has set U.S. growth as a priority this year, but analysts worry that a deal with a joint venture could be too complex.

Ericsson's head Carl-Henric Svanberg sounded a cautious note when addressing Motorola's mobile phone unit.

"As professional business leaders we look at everything, but we would take a very cautious view on such a thing because we do believe you are better off doing it on your own," Svanberg told analysts on Friday.

Potential buyers might recall the 2006 bankruptcy of BenQ Mobile, now trading as Qisda (2352.TW), a year after it bought the struggling handset unit of Siemens (SIEGn.DE) amid difficulties competing in the cutthroat market.

"BenQ's collapsed takeover of Siemens is an example of just how dangerous it might be," said Strategy Analytics' Mawston.

Dongbu's Lee sees Chinese phone makers as more likely buyers than the Koreans. Motorola would be an entry to the U.S. phone market for companies such as Huawei or ZTE (0763.HK), which want to boost their profile beyond China.

But many analysts cited difficulties for those companies in paying for and digesting a big international organization.

"Domestic Chinese handset companies are not performing all that well. Their share in China is well below that of the big foreign players here, and they don't really make much of a profit, so I don't think it's likely" said Liu Bin, principal analyst at Beijing-based research firm BDA.

(Additional reporting by Marie-France Han in Seoul, Sophie Taylor in Shanghai, Jennifer Tan in Singapore, Mayumi Negishi in Tokyo, Tarmo Virki in Helsinki, Georgina Prodhan in Frankfurt, Baker Li in Taipei and Jerker Hellstrom)