According to the Wall Street Journal, Nortel and Motorola are discussing a joint venture that would combine their wireless-infrastructure business units. The two companies have been talking about the joint venture for about a month, the WSJ says.
From a cost perspective, such an arrangement would make sense. Combining the units would help reduce overall marketing, sales, product development, and administrative expenses. What it would not do is revive a spent telecommunications-equipment market, which has been battered by telecom consolidation for years and is now suffering from the effects of an macroeconomic slowdown in North America and Europe. What’s more, both companies have suffered margin erosion at the hands of lower-cost Chinese vendors, such as Huawei.
Neither company is in good shape strategically, with Motorola under intense shareholder pressure to recast itself into something more than a bunch a disparate business units gradually fading into irrelevance. Motorola’s talks with Nortel, incidentally, are separate from its deliberations regarding a spinoff or sale of its handset group, which hasn’t done much of anything since it squandered the success it enjoyed with the original Razr models.
For its part, Nortel, once a telecommunications colossus, has never recovered from the bursting of the telecom bubble. The company has been like a bigger version of 3Com, constantly remaking itself in ever-smaller permutations. It now entertains aspirations of taking share from Cisco in enterprise networking, a market that now is growing marginally in North America and Europe.
A combined telecommunications-equipment joint venture between Nortel and Motorola would generate approximately $10 billion in revenue annually. Nortel would be the dominant partner, with Motorola holding a minority interest. Apparently the two companies had considered an an arrangement whereby each would own 40 percent of the venture, with a financial investor taking the remaining 20 percent. With worldwide credit markets closing like a shark’s jaws, that plan was aborted.