Motorola spins off handset operation

Motorola will split into two companies, one making mobile devices and the other making network infrastructure, the company announced Wednesday.

The companies will operate separately and be publicly traded. Motorola expects the split to take place in 2009, if it gets the necessary approvals.

“Everyone agrees Motorola had to do something, the split will relieve some of the pressure from stockholders,” said Ben Wood, director of research at CCS Insight, who at first glance thinks the split makes sense.

The decision to split into two follows a review of the company’s mobile phone business, announced Jan. 31 and conducted by the management team, the board of directors and independent advisors. Motorola is following in the footsteps of Nokia, which put its network activities into a joint venture with Siemens, and of Ericsson, which put its mobile phone business into a joint venture with Sony.

“The mobile phone division has taken a bit of a beating, and this is what you get,” said Richard Webb, directing analyst, WiMax, Wi-Fi, and Mobile Devices at Infonetics Research.

The split will provide improved flexibility, more tailored capital structures, and increased management focus, as well as more targeted investment opportunities for shareholders, according to Greg Brown, Motorola’s president and chief executive officer.

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Analysts agree the split will bring improved focus, especially for the mobile phone company.

“[The mobile phone part] won’t have to take the infrastructure side into consideration, and the split may also help raise its profile,” said Webb.

But that can also be a bad thing. It was in part because of handsets that Sprint dared to make its big gamble on WiMax, which has proved problematic.

In the end, the mobile phone business needs a healthy and competitive Motorola, according to Wood.

“It’s needed to provide some balance with Nokia. A Nokia-Samsung duopoly isn’t good for anyone,” he said.

Based on current plans, the creation of the two stand-alone businesses is expected to take the form of a tax-free distribution to Motorola’s shareholders, subject to further financial, tax and legal analysis, resulting in shareholders holding shares of two independent and publicly-traded companies, Motorola said.

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