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Motorola's breakup looks good, but is it a mistake?

Shamus McGillicuddy

Motorola's plan to spin off its struggling mobile device division has observers hopeful about the rest of the company. But at least one analyst thinks Motorola is giving up on its mobile business too soon.

"They're doing it from a position of weakness," said Avi Greengart, research director of mobile devices at Current Analysis Inc. "[Motorola CEO] Greg Brown is trying to get rid of what should be their flagship rather than fixing it. Their best chance of success would be to minimize distraction, get strong management in and work on creating a product roadmap that can bring the company back to glory."

On Wednesday, Motorola announced a plan to break up into two independent and publicly traded companies. The mobile device division, which lost $1.2 billion in 2007, would be split off and become its own company. Shareholders have been urging Motorola to

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jettison the mobile device business, which has struggled to hold onto the market share it carved out for itself with its line of Razr phones several years ago.

The rest of the company, dubbed by Motorola as the Broadband and Mobility Solutions business, would remain intact. This includes its voice and data communications products, wireless broadband networks for enterprises and government and public safety agencies, digital and IP video products, cellular and high-speed broadband network infrastructure technology and cable set-top receivers.

Greg Brown is trying to get rid of what should be their flagship rather than fixing it.
Avi Greengart, research director
Current Analysis Inc.

Brown would presumably remain in place as CEO of the networking company. During a webcast on Wednesday, he said he was continuing a search for a CEO for the mobile device division.

The timeline of the breakup was vague and uncertain. Motorola said only that the breakup would happen some time in 2009. Brown hinted that there was no guarantee that the split would even occur.

Virginia Lee, senior analyst of wireless infrastructure for Current Analysis, said a breakup would be a major boost for Motorola's network business, but the process could also become a distraction.

"It's a positive for them because it allows them to have more focus and not have to worry about this beleaguered mobile device group," Lee said. "They also announced some new products in the networking arena at the same time … so the networking group is going strong and even showed a profit last year. So it could be a really good thing for the networking group."

Lee said the network business has a better chance of success because it has a fairly stable organizational structure, is continuing to move forward with product innovation and has demonstrated increasing revenues and profit margins.

"The future looks bright for them. I think what it does is tighten up focus on both ends," said James Brehm, senior consultant at market research company Frost & Sullivan. "The consumer handset division does not have to worry about enterprise. And on the enterprise side, it provides focus to the business and gets some of that noise that has been created [by shareholders] for the last six months or a year about how you have to do something -- you have to change."

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Still, as the split slowly unfolds, many employees will be left wondering about their future. Lee said this could cause trouble for the whole company. Customers of Motorola's networking business, especially telecoms, should monitor the company closely. If they start to see product schedules slip, they should take that as a warning sign that the distraction of an impending breakup is taking its toll, she said.

Greengart took a dim view of the move. He said the mobile device division has true potential if only management would take advantage of it.

"Motorola has all the pieces right now to compete with [Research in Motion, maker of the BlackBerry]," he said. "They have both the hardware and the software. Well, now they're going to be splitting that off. So if Motorola wants to reinvent their solution, that's going to be a lot harder. I think there is a tremendous opportunity for synergy between, for example, the ruggedized smartphones from the old Symbol group, the software from Good and the consumer smartphones from Motorola like the Q. That synergy was never realized, but by cleaving them in two now you ensure it never will be."

He said that spinning off the mobile division when the business is struggling so mightily will create a sense of uncertainty that will handicap its ability to succeed even if it does get itself in order.

"I think the competitors can position this as a negative regardless of what's actually going on in the labs," Greengart said. "Let's assume for a moment that my analysis is wrong and Motorola has amazing stuff that's about to hit market and they just haven't announced it yet. I wonder if that lineup will get a chance in an environment where their competitors can go to the carriers and say, 'Do you trust anything Motorola is doing right now? Is the person there you're talking to today even going to be there tomorrow?'"

Brehm said the split could help the mobile device business by giving the division real focus.

"I should imagine there's some real politics that you and I don't now about internally with how marketing money is spent and how assets are being allocated, particularly technical assets," Brehm said. "Maybe splitting it off is a good thing. I don't know what they have in their pipeline. But as you tighten up focus and put those assets out on their own, you can start pushing out ideas right away."

Lee said Motorola, by spinning off mobile devices, could even be positioning its networking business for a merger with Nortel.

"There have been a lot of rumors about Motorola merging their networks business with Nortel," she said. "And there's certainly synergy there, and this announcement of a process of separating these two units is certainly a first step toward being able to merge with another company."

Greengart said one final question will need to be answered before this split can ever take place.

"They haven't explained what they're going to do with the brand," he said. "Who's going to be Motorola and who is going to be somebody else? It's almost impossible to build a consumer brand from scratch. At the same time, the Motorola brand is extremely powerful in the public safety and infrastructure industries. Both parts of the company need that brand and they haven't explained what they're going to do about it."


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