October 6, 2003 7:36 AM PDT

Motorola to spin off chip unit

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Motorola's chip unit will go its own way, the company said Monday.

In an effort to focus on five product categories in the communications and electronics systems markets, the Schaumburg, Ill., company intends to create a separate company out of its Semiconductor Products Sector (SPS), which builds chips such as the PowerPC.

Motorola said it believes the semiconductor unit would work best as a separate company. It reached that opinion after conducting a four-month review that evaluated semiconductor operations and also weighed its communications products and integrated-electronic-systems businesses.

"We felt as though this was the right time and the right thing to do, based on all the analytics. We think it's the right thing at this stage," said Christopher Galvin, Motorola's CEO, in a conference call Monday morning.

The move makes sense now, as the semiconductor industry has shown signs of a rebound after several tough years, the company said.

But Motorola itself has gone through several tough years, and Galvin has announced plans to step down, citing a difference of opinion with fellow executives on the company's direction. Galvin had spoken in the past about taking a back-to-basics approach.

Motorola chips are used widely in networking and automotive markets, and less often in computers. Motorola chips help control the power train in a number of automobiles, for example. But the SPS has gone through its own set of tough times, most recently surrendering to IBM a key role in delivering the PowerPC for Apple Computer's top-of-the-line desktop. Motorola and IBM both hold a PowerPC license, but each produces its own version of the chip.

Motorola is likely hoping the spinoff will turn things around. The company is considering an initial public offering of a portion of the semiconductor unit, to be followed by a distribution of remaining shares to shareholders in a tax-free manner, the company said. The move is subject to approval by the board of directors and by regulators.

One thing that may help the new company is a shift in the way potential customers perceive it. Because it was part of Motorola, which sells a variety of products, potential customers may have judged there to be a conflict of interest, said Steve Cullen, director of semiconductor research at In-Stat MDR.

"Motorola semiconductor obviously has not been doing all that well over the last couple of years as compared to some of the other companies" in the industry, Cullen said. "By separating the two, Motorola semiconductor may find it's easier to get customers for things like wireless."

As a publicly traded company, the semiconductor group would also be able to add new product lines more easily through acquisition, Motorola said.

"We believe SPS is well positioned to increase its leadership in the end markets it serves, including the networking, communications, transportation and industrial markets," Scott Anderson, president of Motorola SPS, said in a statement. Anderson will lead the separation effort.

Spinning off semiconductors will leave Motorola to focus on building products as well as providing software and services for its major areas of focus, such as networking.

The company will continue with five product divisions. Its Personal Communications Sector will offer cellular handsets and related products, and its Global Telecom Solutions Sector will deliver cellular network gear, software and services.

Motorola's Commercial, Government and Industrial Solutions Sector will focus on delivering radio and other communications products to government and business clients. At the same time, its Integrated Electronic Systems Sector will serve the automotive industry, and its Broadband Communications Sector will offer cable systems and broadband communications products.

Although Galvin plans to step down once a successor is found, he said the efforts to reorganize Motorola are unrelated to his personal plans or any run-ins he might have had with other executives.

"There's absolutely no conflict as it relates to the (business) portfolio," he said. "We all agree on the portfolio, and we believe it's an opportunity to move the company forward with a clearer focus."

Ultimately, Galvin said, "my intention is to leave my successor with a formidable platform on which to build."

Motorola, which reports quarterly earnings on Oct. 14, could not offer exact details on a time line for the semiconductor group's separation. However, it is expected to outline many of those details in an upcoming filing with the U.S. Securities and Exchange Commission.

 

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