Motorola's Proposed Split is Only One Step Towards Recovery

(Business News & Technology News, 28 Mar 2008)

Motorola Inc. recently announced that it will split the company into two publicly traded entities: one company will focus on mobile handsets and accessories while the other will concentrate on its remaining businesses, which include wireless broadband and enterprise communications.

There are many uncertainties remaining around this announcement, none more apparent than, will the split actually happen and when? Motorola's public statement confirmed that its board has commenced a process that would split the company, but included a caveat saying "if" the split is consummated, it is not likely to happen before next year.

Also in question is how the Motorola brand—critical to its handset business as well as its home and enterprise networking products—would be leveraged across both companies. How will intellectual property, systems and services be divided or shared? But the main unanswered question—which goes to the root of the announcement—is, how will spinning off the handset division help bring its handset business back onto stable ground?

"What is clear is that a radical move needed to happen," says Kevin Burden, Research Director, Mobile Devices at ABI Research. "Creating a leaner and more focused unit with an improved cost structure can help fix its execution issues while also tending to attract the type of senior talent it has desperately needed. Still, while the move will give Motorola the chance to repair many of the supply chain issues that have hampered its execution, better innovation resulting in handsets that subscribers actually want to buy is ultimately what will improve Motorola's business—and there is no guarantee that will be the result of this proposed split."

While it's no secret that Motorola's lack of innovation and execution has been its downfall, don't expect it to get much better while it processes the split, warns Burden. "This is going to be a tremendous distraction at a time when the firm really needs laser focus. While it's a bold move that has the promise of paying off in the long run, the almost certain winners in the short run will be Nokia and Samsung, which have been the primary beneficiaries of Motorola's gaffes, but now many of the tier two players including LG and Kyocera also stand to benefit."

While Motorola CEO Greg Brown claims this announcement had nothing to do with the demands of activist investor Carl Icahn, it's hard to dismiss the impact that Icahn's combative and antagonistic style may have had on the decision. Ultimately, this move will be sold to shareholders as a means toward increasing shareholder value, which has always been the endgame for Icahn.

Click here for more information on ABI Research


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