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Will Motorola Shakeup Include Palm Acquisition?

Will Motorola Shakeup Include Palm Acquisition?
By Jennifer LeClaire

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With several major changes at Motorola announced this week, the company's rumored intentions to purchase Palm and its Treo line of smartphones have become muddier, and, according to one analyst, Palm will not be the cure for what ails Motorola. "Purchasing Palm doesn't get Motorola a lot in terms of volume or value in the near-term," said John Jackson, a wireless analyst with M:Metrics.

There are plenty of shakeups in the wireless world this week. After Google killed rumors of a self-branded mobile phone, speculation emerged over Palm selling itself to rival Motorola, Nokia, or a private equity investor.

Meanwhile, Motorola is announcing a series of changes that make its rumored intentions to purchase Palm muddier. On Wednesday, the mobile giant named a new president, CEO, and acting CFO. In the next breath, the No. 2 handset maker slashed about $1 billion off its earnings forecast and warned Wall Street to brace for a loss.

"Performance in our mobile devices business continues to be unacceptable, and we are committed to restoring its profitability," Edward J. Zander, chairman and CEO of Motorola, said in a statement. "After a further review following the leadership change in our mobile devices business, we now recognize that returning the business to acceptable performance will take more time and greater effort."

Motorola's Bloodletting

Motorola now expects sales for the first quarter of 2007 to be in the range of $9.2 to $9.3 billion. The company attributed the downward spiral to lower unit sales in its Mobile Devices division, a difficult pricing environment, and a limited 3G product portfolio.

What's more, the company blamed predicted first quarter GAAP losses on acquisition-related charges and in-process R&D expenses associated with the acquisitions of Symbol Technologies, Good Technology, and Netopia.

John Jackson, a wireless analyst with M:Metrics and former Yankee Group analyst, said the forecast itself is no surprise. However, he added, the billion-dollar bloodletting is greater than anticipated despite explicit warnings of successive quarterly losses.

From Jackson's perspective, the issue is twofold: "The hardware side of the business will continue to hemorrhage margins. And the vision of a diversified technology company that will form the foundation for a seamlessly mobile future is going to be difficult and take time to execute on."

Palm Purchase Plausible?

Motorola announced a series of actions designed to improve execution, drive profitable growth, and enhance shareholder value. In addition to detailing the boardroom makeover, the company said it would take steps to strengthen the performance of its Mobile Devices business. Motorola also plans an accelerated repurchase of $2 billion worth of common stock and an increased existing share repurchasing program to $7.5 billion.

"The steps we are announcing today will enable Motorola to perform better for our shareholders, customers, partners and employees. I am confident Motorola has the right assets, brand and intellectual property, as well as a strong heritage of innovation and a strong balance sheet -- all of which we will draw upon in the coming months." Zander said.

That leaves the Palm rumors. Will Mo purchase Palm? It might or might not, Jackson said, noting that Palm is not the cure for what ails Motorola. "Purchasing Palm doesn't get Motorola a lot in terms of volume or value in the near-term," he insisted. "If Mo pulls the trigger on this I would submit that it's a bit of a distraction."

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