Lenovo's Acquisition Spree; Vodafone Sells Back

Lenovo recently acquired IBM’s low server business ($2.3 billion) and Motorola Mobility from Google ($2.9 billion), wrapping the two deals up within a week. Lenovo is known for surpassing HP as the largest maker of personal computers; however, the PC market is in steady decline. This acquisition falls into Lenovo’s PC plus strategy—expanding into the international smartphone market with Motorola’s global brand (90% of Lenovo sales are from China). However, Lenovo is going to have to integrate Motorola, which reported losses of 384 million in their last quarter, and the servers that they hope will drive innovation and value in system and software areas such as cloud and cognitive computing, instead of just hardware. This is important in a market where several tech giants are phasing out low end servers for high end servers that can handle more complex tasks.

Vodafone recently approved the sale of its 45% stake in Verizon Wireless, returning $84 billion to Vodafone shareholders; the largest single return of value to shareholders in history. Verizon Communications now has complete ownership of its wireless industry, at the cost of $130 billion, the third largest deal in corporate history. Verizon executives assert that the purchase will give them the financial flexibility to invest in new mobile technologies. Verizon shares were down one cent at $47.68 on the New York Stock Exchange after the news. Vodafone shares closed roughly flat at 223.44 pence in London. After AT&T announced that it was not in talks to buy Vodafone (valued at more than $100 billion) and trading on Vodafone stock dropped 4% in London. Analysts are divided over whether Vodafone can prosper on its own or whether it is better off as a takeover target, especially as the European telecommunications sector faces regulatory uncertainty.
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Brandon Nesfield

A Directionless Sprint

Speculation stirring about whether telecom holding company Sprint Corporation will acquire competitor T-Mobile will soon be put to rest. It was reported yesterday, on February 14, that Sprint executives Masayoshi Son (Chairman) and Dan Hesse (CEO) regrouped their team to discuss the plausibility, or lack thereof, of the potential acquisition. This is after multiple meetings with anti-trust officials from the Justice Department and Federal Communications Commission in Washington, who displayed strong disapproval for the deal. Whereas Sprint believes a merger with T-Mobile will solidify a strong 3rd player to compete with conglomerates Verizon and AT&T in the telecommunications industry, regulators believe that healthy competition requires 4 players who should focus on organic growth. They view T-Mobile as a wild-card competitor that, though much smaller in operations, can put consistent pressure on the others with its speedy LTE network, cheap subscription plans, and ambitious offers to buy out contracts of customers from other. The regulators’ goal is to simply keep a balanced wireless marketplace that will benefit consumers in the long run with innovation and quality service.

Sprint, however, is slowly getting cornered and T-Mobile is ostensibly the most practical way out. The company lost 243,000 subscribers in Q4 2012, and analysts believed the company would lose over 350,000 in Q4 2013. This was primarily due to the fact that Sprint is taking its time with 4G LTE and is currently in the middle of a bumpy network upgrade aimed to handle more capacity at higher speeds for customers. The transition, though necessary, has led to poor voice quality and frequently dropped calls. Fortunately however, Sprint most recent quarterly showed that the company beat analyst estimates by actually adding 58,000 new subscribers and narrowing losses 44 cents per share in the year-ago quarter to 26 cents today. The news was characterized as “better than feared” by Wells Fargo analyst Jennifer Fritzsche, and the market responded as Sprint shares rose 7.4% to $8.26.

The future does not look too bright for the telecom giant. And because this deal is very unlikely to fall through – especially with T-Mobile’s aggressive tactics and recently reported gains – Sprint should target different, cheaper initiatives. The company’s recent Family Plan, a new $25 smartphone offer for large groups of family and friends, is a good start. But in order to truly keep up as a major player, Sprint needs to truly speed up its network restructuring and be creative. For a $30 Billion company, that is much easier said than done.
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Inder Takhar