Huawei’s handset biz draws desire, and capital, of private equity: Moto apparently left out in cold

Huawei Technologies Co. has five interested suitors seeking a stake in the Chinese telecom company’s handset division, according to today’s Wall Street Journal.
The nearly instant ardor for Huawei leaves investor-hungry Motorola Inc. looking like a wallflower at a school dance.
The bids, made last week, value Huawei’s handset division at about $4 billion.
The bids for Huawei target just below or above a 50% stake in the company and thus are valued at about $2 billion each, the WSJ report said. The paper estimated that such a stake probably would rank the deal as the largest or second-largest private equity stake ever in a mainland Chinese business.
Huawei announced last month that it sought an investor for its handset division in order to expand that business internationally, particularly in the United States, while keeping the Huawei brand intact.
Bidders for Huawei include Bain Capital Partners L.L.C., Kohlberg Kravis Roberts & Co., Silver Lake Partners, and the private-equity arm of Goldman Sachs Group Inc. The fifth bidder on Huawei’s so-called short list was not revealed. Meetings between Huawei management and the short-listed bidders are set to begin next week.
Other bidders that didn’t make the short list, and thus will not be included in future rounds of bidding, included Blackstone Group, Carlyle Group and TPG, according to the WSJ report.
Apparently, interest in Huawei’s handset division is high. Huawei’s leading business is wireless network equipment, on which it would like to focus greater attention. Huawei was founded in 1988 and has about 80,000 employees overall, according to network analyst Peter Jarich at Current Analysis.
The competitive interest in Huawei’s handset division stands in stark contrast to Motorola’s fate.
Motorola’s troubles
The beleaguered American vendor has sought a similar investment and a new CEO for six months without apparent success. Motorola’s handset division, the world’s second-largest two years ago, has foundered over the past 18 months and its global market share has shrunk dramatically to perhaps less than 10%. Its domestic market share – long its stronghold – has shrunk from about 36% to about 25%, leading to big share gains by Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd.
Private equity apparently believes that Motorola’s situation creates opportunity for a low-cost handset vendor such as Huawei, which has inked a modest deal with MetroPCS in the U.S., but also has huge international deals with Vodafone Group plc.
“We have pretty much written off Motorola’s handset business,” analyst Mark McKechnie of American Technology Research wrote today in an investor note. “Motorola’s execution issues and the failure to locate a new CEO in a timely manner (lead me to believe) that Motorola or outside investors would need to contribute a minimum of $2 billion in cash to stabilize the division and effect a turnaround.”
Ironically, that is the amount that five investors have jumped to invest in Huawei.
In contrast to Motorola, Huawei’s handset business is growing. In fact, the two companies’ fortunes are indirectly linked, according to a recent study by Forward Concepts.
As Motorola’s global market share contracted between 2006 and 2007, four Chinese handset vendors – including Huawei – were among the fastest-growing vendors in the business, although at markedly lower handset shipment volumes. Haier, the fastest growing of the four, gained the No. 10 spot in global rankings last year, according to IDC.