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Motorola to split off cell phone division

Thu., March 27, 2008

CHICAGO — Motorola is banking on a plan to separate its foundering cell phone unit from the rest of the company, yet analysts are mixed on whether the gamble will actually yield big dividends.

The plan to split the company in two, announced Wednesday, comes after months of speculation, shareholder pressure and hand-wringing.

Motorola Inc.’s TV set-top box and modem business and a unit that sells computing and communications equipment would remain under the stewardship of chief executive Greg Brown.

A search is under way for a new CEO for the handset business who will focus on regaining the favor of customers and Wall Street.

“The news that has been coming out of Motorola for the past many years has been lousy,” said Jeff Kagan, an independent telecom analyst. “This could be the scent of a new company forming, and the question is, ‘Will the new company act and perform differently and better?’ We don’t know yet.”

Executives hope the tax-free split, which they expect to complete next year, will quicken the turnaround of Motorola’s handset business.

“The creation of the two independent, publicly-traded companies provides improved management focus and a capital structure that is more tailored to the individual business needs,” Brown said. “And I think it will provide some improved alignment and agility and competitive effectiveness and will help us going forward.”

But the deal is already raising questions as investors debate whether it will revive the once-iconic brand amid increasingly tough competition.

“We’re not convinced splitting the organization ultimately enhances shareholder value, but at least the beleaguered company is trying different things,” RBC Capital Markets analyst Mark Sue said.

Wednesday’s move seemed all but inevitable for Schaumburg-based Motorola – which pioneered the world’s first cell phone decades ago – as it gears up for a second straight year of proxy fights with activist financier Carl Icahn.

Icahn, who lost his proxy bid last year, is pushing a slate of four candidates for the company’s board, individuals he hopes will revitalize Motorola’s cell-phone business – and stock price.

Motorola’s wildly popular Razr became a must-have for trend-conscious shoppers about two years ago, and its headaches began when the Razr fell out of favor in late 2006 and the company didn’t offer a successful second act.

A flock of executives – including CEO Ed Zander – departed the company as it cut thousands of jobs and pulled back from developing markets.


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