Sep 20, 2006This article was originally published by RFID Update.
September 20, 2006—Cell phone giant Motorola yesterday announced that it would buy Symbol Technologies for $3.9 billion, at a per-share price of $15. The purchase price represents roughly a 20% premium over Symbol's closing stock price Friday afternoon, before rumors of the acquisition drove it up over the weekend. Despite the fact that the premium represents a fairly rich valuation for Symbol, most analysts' reaction to the acquisition has been positive.
Forty-one billion dollar Motorola plays primarily in the consumer market, with cell phones as one of its leading businesses. The market is a fickle one, subject to the vagaries of consumer fashion and spending habits. Symbol, as a pure enterprise company, represents a diversification away from the consumer market and into the enterprise market. At about $1.8 billion in 2005, Symbol's revenues will more than double Motorola's $1 billion enterprise business. Furthermore, there is very little overlap between Motorola and Symbol products, so most of Symbol's technology will directly augment Motorola's offering portfolio, and the company will be positioned to exploit the enterprise computing trends of mobility and convergence. Lastly, Symbol enjoys an enviable customer list and distribution channel that Motorola can rapidly leverage for expanded sales.
The question for many in the RFID industry is to what extent Motorola was attracted to Symbol for its RFID business. On the one hand, Symbol is a clear leader in the space, with a portfolio of fixed and handheld readers, antennas, and tags. Furthermore, it has a large footprint across the pilot activity currently going on behind the scenes. In fact, sources tell RFID Update that the number of pilots in which it is engaged has tripled over the last two quarters.
However, despite this accelerating traction, RFID is still between one and three years away from the explosive adoption that many industry-watchers in 2003 and 2004 predicted would have already occurred. Indeed, Symbol noted in its most recent earnings call that RFID revenues for the quarter were immaterial.
But RFID's promise abides, even in the face of disappointing adoption rates. The belief that a highly lucrative, long-term market opportunity will eventually emerge is still strong. "Motorola's strategic interest in RFID -- despite its immateriality today -- is that numerous industry prognosticators have envisioned this long-term marketplace," said Chris Quilty, senior vice president of equity research at Raymond James.
Andrew Nathanson, director of the AIDC/RFID technologies practice at Venture Development Corporation, thinks that the RFID opportunity was certainly attractive to Motorola, but that the company's vision is far broader than a single technology. He pointed to the Wireless Next Generation (Wi-NG) architecture that Symbol announced in May, which is a strategy to build a convergence platform of all manner of wireless and mobile technologies, including RFID, Wi-Fi, VoWLAN, and mesh and WiMAX networks. "The two companies are very innovative on creating convergent and mobile devices," said Nathanson. "And there's going to be a lot of momentum gained from the acquisition."
Symbol is known as much for its bar code business as it is for its more forward-looking initiatives in wireless and mobility. Some analysts speculated that bar code technology might not fit with Motorola's long-term trajectory and could be spun-off as a separate business. Motorola might do the same with the RFID business if it perceived RFID as more of an automatic data capture play and less as part of the long-term mobility and convergence trend.
Some also noted that Motorola is not new to RFID. In the late nineties, the company developed BiStatix, which was an RFID printed antenna technology. Motorola closed down the operation in 2001, however, after deciding that there was no near-term mass market opportunity, according to Raymond James' Quilty.
From a business perspective, the acquisition may end what had been persistent woes at Symbol in recent years. Quilty cited the company's accounting scandals, high executive turnover (four CEOs in as many years), legal wrangles, anemic growth, and flagging market share as reasons why the leadership probably went looking for a buyer. Now under the wing of Motorola, the company will hopefully put its struggles behind it and thrive.
