Motorola splits mobile device unit from rest of company

IDG News Service - Motorola Inc., an institution in radio technology for decades, announced today that it would split into two publicly traded companies, with its unprofitable mobile devices business separated from other operations that include its enterprise mobility, networks and public-safety businesses.

Mobile devices made up half of Motorola's $37 billion in overall revenue in 2007, but the mobile device unit lost $1.2 billion over the prior year. Investor Carl Icahn had been pushing for reforms, including the split, and since he holds more than 6% of Motorola's stock and has been seeking several seats on Motorola's board, he is considered by most analysts as the primary reason for today's announcement.

"The Motorola board is caving in to intense pressure from an investor," said James Brehm, an analyst at Frost & Sullivan Inc.

Ken Dulaney, an analyst at Gartner Inc., said a split "wasn't inevitable" until Icahn arrived on the scene last year. "It's probably not the best thing. ... I think they could have fixed things with good management, but Brown didn't have much time to turn it around" with the pressure from Icahn, he said.

Whatever the primary motivation, CEO Greg Brown said in a conference call that creating two new entities will give great opportunities to investors. He also said Motorola's customers, including many of the world's largest wireless carriers, want the Motorola mobile devices business to succeed.

"It's a brand they value," Brown said. "The overwhelming majority [of customers] would like to see a stronger mobile devices organization ... and to get more consistent execution back, which we have struggled with over the last several quarters."

The news raised many questions that Brown said still need to be mulled and answered, including whether the Motorola brand will still apply to both its mobile phones and its networking equipment, which will be in a separate company. The same concern arises over how Motorola's hundreds of patents and other intellectual property will be shared.

Likewise, Brown said he is sensitive to the need to hold onto engineering and management talent in the mobile device business, as he makes finding a new CEO for mobile devices a top priority. The split will take months, and if it is consummated, it would take place in 2009, Brown said.

Many investment analysts questioned whether the mobile device business might be sold to another company, such as Research In Motion Ltd., the maker of the BlackBerry handheld. But Brown said that he would not speculate on the possibility of a sale and that he is focused instead on finding a CEO for the mobile device business who could bring in a top team of managers.

One strategic question for large enterprise customers using Symbol devices for wireless and handheld applications, after Motorola purchased Symbol Techonologies Inc., is whether the mobile device business will be totally focused on consumer phone sales.

Ellen Daley, an analyst at Forrester Research Inc., said the two new companies would be best served if they work together so that the device business focuses on both enterprise and consumer handsets that work with Motorola networking gear.