Namashkar Moto

It calls itself 'The Indian Multinational'. Now Videocon, India's largest consumer durables company has evinced interest in acquiring the mobile handsets division of Motorola, the world's third largest handset maker after Finland's Nokia and South Korea's Samsung.

That Motorola's handset division was in trouble is old hat. Motorola's gross revenues have fallen from $ 42.8 billion in 2006 to $ 36.6 billion in 2007. That's largely due to slowing handset sales. The handset division clocked sales of $ 19 billion in 2007 against $ 28.4 billion in 2006. Handset sales slumped 27% from 217.4 million in 2006 to 159.1 million in 2007. It is claimed that Merrill Lynch has valued the handset division at $ 3.8 billion.

So does it make sense for Venugopal Dhoot to take the plunge?

For starters, Videocon is rolling out a pan-India mobile service network. The handsets could feed into that, but, there is no reason why a subscriber should opt for a Moto handset in a country where Nokia was and is still King. Nokia controls over 60% of the Indian mobile handset market, that is estimated to have picked up close to 100 million handsets in 2007.

Second, margins in the handset business are wafer thin. So that could be a difficult long-term bet for Dhoot. Lastly, this is a business where R&D budgets are huge. That is what hit the bunch of Chinese handset makers. Lastly, Motorola has not come with a great product after the Razr. That was too long back in history. It remains to be seen what Videocon can manage to overcome this problem. This is critical to ensure survival in a business where people change handsets in less than a year.

This could make or break Videocon.