January 31, 2008 5:39 PM PST

Motorola considers cell phone biz spinoff

Motorola considers cell phone biz spinoff
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January 31, 2008
Maybe Carl Icahn was right about Motorola.

The company, which practically invented the cell phone market in the '80s, is considering spinning off its beleaguered handset business in an effort to revive the business, Motorola said Thursday.

In a press release, the company said it was considering a "structural realignment" to kick-start its mobile-device business, which has seen its global market share plunge to 12 percent from more than 20 percent market share a year ago. The main problem has been Motorola's inability to come up with new handsets to follow the once highly popular Razr.

Last week, the company told investors it would take longer than expected to turn around its troubled cell phone business. And it warned that revenue and market share would likely decline further in the first quarter.

Icahn, the activist investor who has been critical of Motorola's management for more than a year, has encouraged the company to break up, separating the handset division.

"For many months I have been publicly advocating the separation of Mobile Devices from Motorola's other business," he said in a statement. "And I am pleased to see that Motorola is finally exploring that proposal."

Icahn, who lost his bid to win a Motorola board seat last year, said Thursday he still plans to go through with yet another proxy fight this year to win board seats.

"We have previously informed Motorola that we expect to run a slate of directors for the upcoming annual meeting," he said. "And this announcement by Motorola will not deter us from that effort--we believe Motorola is finally moving in the right direction, but certainly still has a long way to go."

Wall Street reacted positively to the news of a possible split in the company and boosted Motorola's share price 10 percent to $12.65 in after-hours trading. But some industry analysts say that simply selling the handset division could be a bad idea for the company, which has spent billions of dollars over the past several years building its consumer brand.

"The question is if you sell off the handset business, what's left?" said Iain Gillott of iGillott Research. "It doesn't make sense for them to have spent so much money developing their consumer brand if they're going to use it to sell set-top boxes and emergency radios."

One-hit wonder?
Four years ago, Motorola struck gold with its popular ultrathin Razr, which launched in 2004. That product helped Motorola increase its market share from 15 percent to 23 percent by the end of 2006. But after the phone became available on all four major cellular networks in the U.S. and the company cut prices, its margins plummeted. Since then, Motorola hasn't found a high-end handset to replace the Razr and boost revenue and profit margins.

While the Razr franchise has been viewed as a tremendous success, executives have been criticized for allowing the product to become commoditized and for not coming up with another hit phone. The company's poor performance ultimately led to the ouster of CEO Ed Zander in November. He was replaced earlier this month with Greg Brown.

Meanwhile, Motorola has tried to revive its lineup of phones. In May it introduced several new products that added functionality such as 3G, or third-generation, network support and multimedia features. But most of the products were nothing more than souped-up versions of devices the company had already been selling.

The final straw seemed to come last week when the company reported an 84 percent decline in fourth-quarter profit, due mostly to sharp declines in its handset business.

CONTINUED: Steady slip in market share…
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Motorola Inc., handset, market share, Motorola Razr, cell phone

5 comments

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Its over
Yep, its over for these guys. Just waiting for the fat lady to sing. They have sold off and outsourced so much that they are now longer in control of their own destiny. Its barely a marketing company.
Posted by Tim Brower (4 comments )
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It Would be a Good Move
Most companies take two existing firms combine them and end up with less than they started with. Spin off units though and both usually do better apart than together.

Motorla makes a good phone. They just suck at some things that a stand alone company could fix. Who knows I may even put the spin off back on my buy list if they fix the issues that caused me to quit buying Motorola.
Posted by Renegade Knight (13748 comments )
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No Way
I love their cellphones.
Posted by Jinhi_Lo (3 comments )
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Dell buying Moto phone. Platform for Android
Rumor has it that Dell is eyeing the Moto phone biz. Plans to use that as a launch pad for Dell Android Phones.
Posted by anon8mizer (23 comments )
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ive used motorola for approx ten yrs. its a great phone, plus the only phone with great signal strenghth.i can talk in in a aparment bldg. or a tunnel and never lose my signal.the others dont emphisize on signal strenghth..great company..
Posted by tysonsrose (1 comment )
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