Will Motorola Split Reverse Decline?

Motorola today said it plans to split its core mobile devices and broadband businesses into two publicly owned companies, a move it hopes will provide the “clarity of direction” needed to get the No. 3 handset maker on the road to recovery.

“This will provide improved flexibility, increased management focus and pave the way for us to regain leadership,” CEO Greg Brown told investors during a live Webcast before the stock markets opened.

He added that the strategy, slated for completion by 2009, would foster development of “compelling products” by the mobile division, a move to counter Motorola’s (NYSE: MOT) slipping fortunes in handsets.

Lackluster performance in its mobile business caused Motorola earlier this year to fall to the third-place spot in the market, behind longtime leader Nokia and Samsung, the new No. 2 player.

Motorola’s value has been in steep decline since late 2006, with its share price falling more than 60 percent, losing $37 billion in market capitalization.

A spin-off or sale of Motorola’s ailing handset business had long been the subject of speculation by industry observers since Brown replaced Ed Zander in January and initiated an “assessment” of the mobile unit.

“I’m surprised this took so long actually,” Carmi Levy, senior vice president at researcher AR Communications, told InternetNews.com. “It’s an effort for Motorola to hold on to whatever traction it still has. They’re a fading No. 3 player, and the future is cloudy.”

The move also comes amid increasing pressure from investors to pursue a new strategy for the beleaguered division.

Yesterday, activist shareholder Carl Icahn renewed efforts to force Motorola into changing its direction, filing a lawsuit seeking documents on the company’s mobile strategy and nominating a slate of board of directors members.

Icahn, who made a similar push for board nominees last year, did not return calls for comment by press time. In his letter to shareholders explaining the moves, the investor cited the company’s slide in market value during the past 18 months.

Brown declined to answer questions during his call with investors about whether pressure from Icahn and other critics had played a role in today’s announcement.

Instead, Motorola’s CEO described the decision to split the company as coming largely in response to his two-month, in-depth evaluation of potential strategies for the poorly performing handset unit.

Brown’s evaluation of the unit also coincided with months of top-level executive changes for the business.

Motorola’s stock price ticked up slightly on the news, with shares trading up about 2 percent by press time, at $9.95.

Company spokespeople added that the split is not a precursor to a sale of the mobile division — a move long rumored by industry watchers, many of whom now say a sale no longer remains an option.

“They did float a potential sale, and no one was interested,” Jeff Kagan, a telecom and wireless analyst, told InternetNews.com. “This is a drastic move but presents a new opportunity to give the company a fighting chance. [Brown] is reinventing the company and if successful, Motorola will become a leader again — but it will take a few years.”

Industry watchers said that for Motorola to regain its place in the space, it needs to find the right leader for its mobile business.

The company has been searching openly for a new head for its mobile unit since Brown stepped in at the end of January to personally direct everyday operations.

“They’re going to have to find someone willing to swing for the fences, who’s looking for a big career risk opportunity,” Levy said. “If the person succeeds, they’ll be a savior — or they could flame out.”

Retaining engineering and product development personnel is also a key concern, Levy added.

“This is a challenge and a big strategic issue,” he said. “Google has proven that recruiting the best and brightest can pay off.”

For his part, Brown said he believes the split will help efforts to lure an executive to oversee the handset division — thanks to the independence associated with running a new company and the potential for the unit’s growth.

The decision to split “enables us to pick a world-class leader,” he said. “We’re looking for a proven leader with a track record who has technology and electronic domain expertise. I think this is a valuable component to our search for a new leader.”

Yet observers said success relies chiefly on whether Motorola can put another blockbuster product into the market.

“Motorola was a leader in the 1990s, and it had the No. 1 handset,” Kagan said. “But it went off track. They never followed up with another product like that Razr. The good news is that the wireless industry is still exploding.”

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