Nortel Seen Holding Hands With Motorola

The new entity, combining businesses that make network equipment for wireless phone carriers, would likely have sales of about US$10 billion, according to The Wall Street Journal, which cited people familiar with the talks.

The industry is seeking new ways to counter slowing growth in telecommunication equipment.

'Rumor and Speculation'

Nortel spokesperson Ann Fuller said Monday that the company does not comment on "rumor and speculation." Spokesperson Jennifer Weyrauch-Erickson for Schaumburg, Ill.-based Motorola said the company doesn't comment on "rumor."

The reported talks, separate from a possible Motorola divestment of its handset division, would be part of a restructuring effort by Motorola's Greg Brown, who became chief executive Jan. 1.

Nortel chief executive officer Mike Zafirovski was Motorola's president and chief operating officer before taking over as head of the Canadian-based company in November 2005.

"We view the news as a positive for Motorola. It's clear the company is making greater efforts to unlock the value of its business units and potentially exit businesses that lack good long-term growth prospects as a standalone business," analysts with Oppenheimer & Co. wrote, while maintaining their outperform rating on Motorola and perform rating on Nortel.

Slipping Sales

Motorola's troubles stem not only from the lack of a top-selling successor to the Razr but also from its aggressive price-cutting to try to catch Nokia (NYSE: NOK) , the runaway leader in handset market share.

The strategy bombed, sapping Motorola's profit margin and ultimately its sales, and it slipped to No. 3 last year behind both Nokia and Samsung Electronics.

Motorola last year pulled back from developing markets, cut 7,500 jobs and said goodbye to CEO Ed Zander. More cuts and changes are likely as the new management team scrambles to retain control in the face of a revived threat from activist investor Carl Icahn.

Last week, funds controlled by Icahn disclosed a 5 percent stake in Motorola in a filing with the Securities and Exchange Commission.