While some decent arguments can be made in favor of the decision by Nokia Siemens to acquire Motorola's
Why the deal makes sense...
At first glance, forking over $1.2 billion to snap up the lion's share of Motorola's Networks division looks like a good move for Nokia Siemens, a joint venture between Nokia and Germany's Siemens. In spite of reporting a 7% annual revenue decline in the first quarter (understandable given a weak environment for wireless infrastructure spending), the Motorola division managed to post a healthy $112 million operating profit – a number that Nokia Siemens could boost over the short-term by eliminating redundant spending in R&D and other areas.
Just as importantly, Motorola's division is strong in one of Nokia Siemens' weakest markets – North America – thanks to its healthy relationships with Verizon
...and why it doesn't
Too bad for the company, however, that Motorola's North American strength is an illusion when you take a long-term view. A large chunk of the Networks division's revenues come from selling 3G equipment based on the CDMA2000 standard to Verizon, Sprint, and others. With CDMA2000 having been soundly rejected as a 4G platform by carriers around the world, this part of the division's business is guaranteed to plummet in the coming years.
Meanwhile, the Motorola unit is only a bit player in the market for infrastructure equipment based on the LTE standard that most carriers worldwide -- including Verizon, AT&T, and T-Mobile -- plan to use for their 4G networks. While Motorola has carried out LTE network trials with Verizon, Verizon has already chosen Ericsson and Alcatel-Lucent
So while Nokia and Siemens deserve credit for trying to bolster a lagging core business through acquisition (something that Nokia has historically been averse to doing), the Motorola deal carries too many red flags to make me think that this move will succeed. Personally, I think that Nokia would've been better served by using its cash hoard to acquire Palm, with the goal of halting its freefall in the high-end smartphone market before Apple and Google can claim a full-blown duopoly.
Instead, Nokia went for a buyout target that might be easier to digest over the short-term, but will probably leave the company with a case of heartburn over the long haul.
Fool contributor Eric Jhonsa has no position in any of the companies mentioned. Nokia and Sprint Nextel are Motley Fool Inside Value choices. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Google. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.