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Motorola Seeks Chip Unit IPO

After four months of study over the summer, Motorola has decided to spin off its semiconductor division with an IPO sometime next year.

The move will "unlock the value" of the company's chip division, said departing CEO Christopher Galvin in a conference call.

The Chicago-area company's Semiconductor Products Sector (SPS) does about $5 billion a year, mostly in the wireless broadband, networking and transportation areas.

But the semiconductor business is notoriously cyclical and requires greater capital investment than Motorola's other divisions. By taking it out of the mix, the core company will be less vulnerable to the uncertainties.

And though it won't say what it expects the semiconductor company's market value to be, Motorola execs noted that chip companies are generally better funded than general communications firms. Having its own ledger, could give it more cash to make acquisitions and research and development investments.

While investors have urged Motorola to spin off its semiconductor unit, the move also reflects a renewed corporate focus on wireless networking and mobile handset manufacturing.

Last month word of Galvin's forced resignation raised questions about the management roster. Current SPS president Scott Anderson will lead the spinoff transition. It is less clear, whether Anderson will become the CEO of the new company.

Also still hazy is precisely what products and plants the company will hone in on. In recent years, Motorola has shied away from multi-billion dollar investments required to build the next-generation of chip factories.

Motorola calls its strategy "asset light," which refers to sharing revenue and risks with partners.

While the chip unit had sales of $4.8 billion in 2002, it still lost money. Motorola's other businesses generated $22.5 billion last year.

It is still not entirely clear why Galvin is resigning, but some reports say the longtime CEO clashed with others over the direction of the Schaumburg, Ill., company.

The timing of the IPO depends on regulatory and board approval. A portion of the new company will be offered to the public, which other shares will be distributed tax-free to Motorola stockholders.

While the chip sector has struggled over the past few years, Motorola indicated "the semiconductor industry cycle appears to be in an upswing; therefore, Motorola believes the time is right to take these actions."

Last week, The Semiconductor Industry Association reported a pickup in global chip sales in August, posting a 4 per cent jump in sales over July.

The group said there are indications of a recovery for the $142 billion global semiconductor market. The SIA said August chip sales were $13.42 billion, a 12.5 per cent increase over a year ago, and the sixth consecutive monthly sales increase for the chip sector.