Motorola to Split off Handset Business

NEW YORK -(Dow Jones)- Carl Icahn 1, Motorola 0.

The Schaumburg, Ill., company said Wednesday it would split off its troubled handset business into a separate publicly traded business, relenting to demands by the activist investor.

The move would create an independent mobile devices company, which accounted for roughly half of Motorola's total revenue in the fourth quarter. It also leaves standing alone a company that makes TV set-top boxes, wireless equipment, public-safety radios and bar-code scanners. In an industry where others are consolidating, Motorola is going the opposite route.

"Companies usually combine divisions for operating efficiencies," said Mark Sue, an analyst at RBC Capital. "Motorola is doing the reverse. We're not convinced splitting the organization ultimately enhances shareholder value."

Investors, however, appeared to like the news. Shares rose 1.7%, or 17 cents, to $9.93. Shares have fallen nearly 50% over the past six months, and are at their lowest levels in five years.

The move is also seen as appeasing Icahn, who is seeking representation on the company's board and sued the company earlier this week to get documents related to the mobile business. Icahn wants to replace four Motorola directors with his own people, and had previously rejected a compromise by Motorola to install two board members.

Icahn was not immediately available for comment.

President and Chief Executive Greg Brown said the spilt - which the company said two months ago it would study - "will provide improved flexibility, more tailored capital structures, and increased management focus - as well as more targeted investment opportunities for our shareholders."

The split will enhance the pace of the handset business' turnaround, Brown told analysts during a conference call on Wednesday.

"Clearly there's a lot more work to be done," Brown said about the period between now and when the company expects to make the change next year. "It will be a product-led recovery. We're taking steps now to ensure and solidify that direction."

The creation of the two stand-alone businesses - expected in 2009 - is planned to take the form of a tax-free distribution to Motorola's shareholders, resulting in shareholders holding shares of both companies.

Brown said Motorola is searching for a new chief executive for the mobile-devices business, which will continue to design, manufacture and sell mobile handsets and accessories globally and licenses a portfolio of intellectual property. Stu Reed, former head of the unit, was moved aside last month and has since left the company.

The prospect of running a standalone business will attract a "world-class CEO," Brown said, adding that he was actively looking for candidates.

The mobile business fell behind its peers on third-generation, or 3G, handsets, and has sputtered since the decline of the Razr phone. The segment's sales slid 33% last year to $19 billion, and it swung to an operating loss of $1.2 billion, compared with prior-year earnings of $2.7 billion. In January, Motorola warned that plummeting sales at the cellphone division would lead to an overall loss in the first quarter, adding that it couldn't predict when it would halt its slide in market share.

Meanwhile, the broadband and mobility-solutions business' home and networks-mobility unit, which makes cable-television equipment and gear for cellphone carriers, posted a 9% rise in 2007 revenue, though earnings dipped 9.9%. Its enterprise-mobility unit - which makes public-safety radios and bar-code scanners - saw full-year revenue jump 43%, as earnings shot up 25%.

Motorola - which recently lost its No. 2 position to Samsung Electronics - has also been hurt by the troubles at Sprint Nextel. Motorola is a supplier of Nextel iDEN phones, which has seen a drop-off in users as customers leave the Nextel network.

Brown - while noting that Motorola's recovery would rely on improved products - has said Motorola is transitioning toward more smartphones and higher-end phones, and that mobile devices will still be an attractive market several years from now.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(Donna Kardos contributed to this story.)

(END) Dow Jones Newswires

Posted to the site on 26th March 2008

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