Motorola has decided to split itself into two publicly traded companies, one handling handsets and accessories and the other taking on broadband networks and communications services. The move comes after mounting pressure from investors and analysts. In my opinion, this is a good thing.

Aldo Cugnini
Analyst

The Mobile Devices business will handle the designs, manufacturing, and sales of mobile handsets and accessories, and will license a portfolio of intellectual property. The Broadband & Mobility Solutions business will handle voice and data communication solutions and wireless broadband networks for enterprises and governments. It will also handle IP video, cellular, and high-speed broadband network infrastructure, and cable set-top receivers.

"Our decision to separate our Mobile Devices and Broadband & Mobility Solutions businesses follows a review process undertaken by our management team and Board of Directors, together with independent advisers," CEO Greg Brown said in a press release. "Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus - as well as more targeted investment opportunities for our shareholders."

Billionaire investor Carl Icahn, who owns 6.4% of Motorola’s outstanding shares, won a bid to grab two seats on the Motorola board. The move will put Icahn in a position to influence the pending spin-off of Mobile Devices, and will give him say in the search for a new Mobile CEO.

While sales in 2007 for the Mobile Devices division was nearly equal to those of the company’s other two divisions, it lost $1.2 billion while the other divisions earned $1.9 billion. Revenue from the handset division is expected to be well below the $19 billion it did last year, and losses are projected to be up sharply from the $1 billion deficit for that same period. Motorola has also lost its standing as the world’s No. 2 handset supplier to Samsung Electronics. After two years of strong Razr phone sales, a phone with perhaps one of the largest displays in a clamshell phone, a compelling replacement failed to materialize in a market accustomed to "new every two."

Meanwhile, the company said it will stop making mobile phones in Singapore by the end of the year, but will continue to base its headquarters for Asia-Pacific there. Worldwide, the company is laying off another 2,600 workers, bringing the company’s total employee cuts to more than 10,000 since last year. The move comes as part of a two-year cost-cutting plan now expected to save $500 million. And, Motorola’s India R&D center, which primarily provides software development for mobile devices, is also seeing some of its senior executives leaving the organization.

We’ve long felt that the Mobile and Broadband divisions of the company were at odds with each other, competing for R&D dollars as well as strategic focus. When Motorola acquired cable products manufacturer General Instrument 8 years ago, the corporate culture of the innovation-hungry consumer handset business did not match well with the entrenched service-provider-driven cable business. Rumors long had it that the two groups never really melded, especially where it mattered - at senior management.

Mobile phones compete with hard-wired voice service, and this opportunity should be made easier with the spin-off distancing itself from the Broadband Group’s voice-over-cable products. Also, the independent handheld company should now be in a better position to partner with other device manufacturers, compared with the larger Motorola bureaucracy. This has already happened with the earlier Freescale spinoff of the semiconductor devices business. A key to this success will be the successful transfer of the appropriate intellectual property to the new company-something promised but not guaranteed.

Reply to the author