Motorola Spins Off Struggling Mobile Device Business

Motorola on Wednesday said it plans to split its Mobile Devices Business and Broadband and Mobility Solutions Business into two separate publicly-traded companies in the wake of shareholder outcry over the poor management of its mobile phone business.

In a conference call the Schaumburg, Ill.-based communications technology company said the decision to split follows an evaluation of structural and strategic realignment of its businesses and is a move to create success for both independent arms.

"Our decision to separate our Mobile Devices and Broadband and Mobility businesses follows a review process undertaken by our management team and Board of Directors, together with independent advisors," said Motorola president and CEO Greg Brown in a statement. "Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus -- as well as a more targeted investment opportunity for our shareholders."

Under the current plans, creating two stand-alone businesses is expected to take the form of a tax-free distribution to Motorola shareholders, subject to further financial, tax and legal analysis, resulting in shareholders holding shares of two independent, publicly-traded companies.

The Mobile Devices business will continue with multi-mode, multi-band communications products and technologies. The unit will continue to design, manufacture and sell mobile handsets and accessories globally with integrated software solutions.

The Broadband and Mobility Solutions business will include Motorola's Enterprise Mobility, Government and Public Safety, and Home and Networks businesses. These businesses make, design, integrate and service voice and data communications solutions and wireless broadband networks for enterprises and government and public safety organizations. They also offer end-to-end IP video solutions, cellular and high speed broadband networks, cable set-top receivers and other customer premise equipment for commercial and residential wireless networks.

According to Brown, dividing the two divisions does not change Motorola's priorities and Motorola will immediately begin searching for a CEO to head up the Mobile Devices business.

"We remain committed to improving the performance of our Mobile Devices business by delivering compelling products that meet the needs of customers and consumers around the world," he said. "As part of that effort, we have undertaken a global search for a new chief executive officer for the Mobile Devices business. We believe strongly in our brand, our people and our intellectual property, and expect that the Mobile Devices business will be well-positioned to regain market leadership as a focused, independent company."

During the conference call announcing the split, Brown said Motorola hopes to reinvigorate its Mobile Devices business, which has been struggling against the likes of Nokia, Samsung and BlackBerry for market share. In the final quarter of last year, Motorola told investors that net profit dropped 84 percent and sales of mobile phones fell 38 percent, while Motorola's chief rivals continued growth.

"We also expect this action to enhance the pace of recovery in Mobile Devices, to pave the way for its return as a leader in its industry, to accelerate our efforts to attract a new leader and to create shareholder value," Brown said.

The split came as no surprise to VARs, who said Motorola's struggling Mobile Devices unit was in need of a tune-up. Rumors had been circulating for more than a month that the mobile phone division would be spun off.

Next: Motorola Needs Innovation

"If it gives them more focus to develop devices that are revolutionary I'm all for it," said Alex Zaltsman, co-founder and managing partner of Exigent, a Morrisville, N.J.-based solution provider.

According to Zaltsman, Motorola had become too big for its own good and the mobile devices division didn't get the attention it needed to flourish.

"I think this will give them focus and they can develop more innovative products," he said. "They need to be focused on innovation. In the age of the iPhone and the new BlackBerry devices, they need to get back to where they were years ago."

Zaltsman said new and innovative offerings from Motorola's Mobile Devices business would help him not only sell more devices and solutions to his customers, but it would also drive the demand for more services, helping him increase revenue. He said the last great device he can recall from Motorola was the original Q smartphone, which started shipping in 2006.

"The Q was big," he said. "That was a big device for them. We sold a lot of them. They really have to come out with something that captures that excitement. I hope this separation will be more conducive to that."

The separation announcement comes just two days after billionaire investor Carl Icahn, Motorola's second-largest shareholder, sued the company demanding that Motorola turn over records pertaining to the struggling Mobile Devices business and documents detailing the use of a corporate jet by top Motorola executives and their families. Icahn claimed Motorola's device business was lagging because of poor guidance by the board of directors and wanted to view documents that offered insight into the devices business' direction.

"Over the past 12 months the statements and predictions of Motorola's management and the Board about the Mobile Devices business have too often proven to be wrong," Icahn wrote in a statement. "We want to ascertain what the board could have done in the exercise of its fiduciary duty to assure Motorola stockholders that Motorola's statements and predictions were not incorrect and would not provide Motorola stockholders with an inaccurate perspective on the prospects for the Mobile Devices business."

Icahn's suit asked for materials such as board and committee meeting minutes relating to the service and selection of senior officers; the prospects or strategy of the Mobile Devices business; and the realignment of the business, including a potential spinoff of the mobile devices business. Icahn had said he was in favor of a spinoff. The financier, who owns 6.3 percent of Motorola's shares, also requested documents released to the media and in conference calls pertaining to improvements or changes in the mobile devices business which haven't come to fruition. Lastly, Icahn demanded documentation detailing the use of Motorola's corporate jet and other property by senior management, board members and their families.

In a letter dated Monday, Icahn detailed a situation that has "gone from bad to worse," noting that this year was supposed to be a successful and profitable year in mobile devices with the potential to achieve 10 percent operating margins in the near future. Instead, Icahn said, it has become a "stockholders' nightmare." He urged stockholders to vote for new directors of Motorola at the company's May 5 annual shareholders meeting.

Icahn said he plans to use the materials he obtains through the lawsuit as part of his ongoing battle to win four seats on Motorola's board. Icahn has nominated former Viacom CEO Frank Bondi, WR Hambrecht and Co. founder and CEO William Hambrecht, MIT professor and semiconductor materials processing expert Lionel Kimberling and Icahn Enterprises CEO Keith Meister for spots on the board.