Motorola Bellies Up to the Bar Code
Motorola Chief Executive Ed Zander took a significant step toward making the cell-phone giant into the versatile communications giant he has always desired. Zander announced Tuesday an agreement to buy Symbol Technologies (SBL), a maker of bar code and inventory scanning technology, for about $3.9 billion. The acquisition enables Motorola (MOT) to boost sales of wireless handheld devices to corporate customers such as FedEx (FDX), big-box retailers, airlines, and hospitals. What's more, as companies expand their use of radio-frequency tracking chips, Motorola stands to benefit by merging that technology with one it already knows intimately: cellular phone networks.
"We wanted to add bulk to our enterprise portfolio, and this does it," Zander said in an interview Sept. 19 at the company's Schaumburg (Ill.) headquarters. "CIOs think about mobile every day." The Symbol purchase is Motorola's largest since its $17 billion deal for cable TV set box-maker General Instruments (GIC) in 1999. With Symbol, "we have a chance to talk to enterprises around the world about the mobile Internet."
Symbol's technology is a far cry from the sleek cell phones Motorola has ridden to a resurgence in recent years (see BusinessWeek.com, 10/18/05, "Motorola's Razr Thick Profits").
Under Zander's leadership, Motorola has emerged as the maker of the coolest mobile phones on the market with products like the thin RAZR, SLVR, and soon to be released KRZR. So popular are these phones that Motorola, long a distant No. 2 in global share to Nokia, has begun to close the gap on its rival.
But Symbol's gear is less slick than it is rugged. The company makes bar code scanners, such as those found in supermarkets, as well as heavy-duty handheld devices for computing. Its products use radio-frequency identification (RFID) tags that store product information in tiny microchips which when scanned allow employers to track inventory (see BusinessWeek.com, 9/11/06, "Attention Shoplifters"). The gear gives Motorola the sort of product portfolio Zander believes will help land corporate customers—from big-box retailers to airlines to hospitals. "It's a great revenue opportunity," Zander said in the interview. "We now have to deliver on what we've set out to do—which is, make a big play in the enterprise market."
Wall Street cheered the deal as a long-term play that could help Motorola forge a whole new platform: marrying cellular network capabilities with product scanning and tracking anywhere in the world. To date, RFID chip technology has been confined largely to unique merchandise that is expensive or sensitive, where shippers are willing to pay a premium for close tracking, says Eric Austvold, an analyst with AMR Research in Boston.
But with an RFID chip transmitting to a mobile telephone network, many of the traditional tracking problems, such as range, warehouse constraints, and extra labor to scan items, could disappear. "When you start to combine these technologies, you start to create new platforms for businesses that don't exist today," Austvold said. With a cell network, "you can track items as they move around the globe. That is a unique position that has not been created by any other company." AMR estimates that there is about $1 trillion in finished products stockpiled worldwide and that better tracking capabilities could allow businesses to reduce inventory levels by 15% to 20%, freeing up capital. The Symbol acquisition also shows how Motorola is focused on "opportunities from a broader value chain perspective to target new and unique growth opportunities," wrote Bill Lesieur, an analyst with Network Business Quarterly in Hampton, N.H.
Symbol will retain its headquarters in Holtsville, N.Y., and become the core of Motorola's global enterprise mobility business under its networks and enterprise unit led by Greg Brown. Some investors and critics, as recently as this year, had suggested Motorola needed to make a substantial acquisition to bolster the prospects of its network infrastructure division. That business has long eaten the dust of rivals such as Ericsson (ERIC) and Nokia (NOK), which win the bulk of wireless infrastructure deals.
All the while Zander played down the importance of a blockbuster networks deal, which he has often described as messy and dilutive. Instead, he emphasized a strategy of pointing Motorola networks toward the future. Zander scored a coup when he took the stage as a partner with Sprint Nextel (S), upon the carrier's announcement of its nationwide WiMAX wireless broadband strategy. And now, with Symbol, Zander has his sights set on nabbing business from lucrative enterprise customers.
"We believe Symbol's product portfolio of 'rugged-ized' handheld wireless devices would be a good fit with Motorola's enterprise networking and public safety divisions, broadening [Motorola]'s reach beyond the consumer handset market and moving them further into enterprise wireless," JP Morgan analyst Ehud Gelblum wrote Sept. 19 in a report.
Gelblum notes that as WiMAX gains a larger presence in the U.S., Motorola could integrate WiMAX into the Symbol devices to produce enterprise gear to match its WiMAX networks (see BusinessWeek.com, 10/5/05, "WiMax Hits the Hotspot").The result: An enterprise-networks business that was once perceived as an industry laggard suddenly has a bright future.