Motorola Inc. plans to split into two companies next year amid pressure from billionaire investor Carl Icahn to break off the money-losing mobile-phone business that it pioneered 25 years ago.
One company will focus on handsets and the other will sell network equipment, cable TV set-top boxes and two-way radios -- businesses that are profitable and growing faster. The board is looking for a new leader for the phone business, Motorola said in a statement today.
The decision buys time for Chief Executive Officer Greg Brown to revitalize the handset unit before the split. Icahn has said the division is undervalued and demanded that it be separated with new management. Brown was looking for a buyer after sales slid for four straight quarters as consumers snapped up phones from Apple Inc. and Nokia Oyj.
``If they had been forced to sell it off, shareholders would have been forced to accept a bargain basement price,'' said Richard Windsor, a Nomura International analyst in London who recommends holding on to the stock. The move is ``the one that makes the most sense for shareholders.''
Motorola hasn't decided which business will be spun off to shareholders, though the current managers will stay with the home entertainment business, Brown said on a conference call. The Schaumburg, Illinois-based company wants the move to be a tax- free way to create two independent, publicly traded companies.
Motorola rose 42 cents, or 4.3 percent, to $10.18 at 9:32 a.m. in New York Stock Exchange trading. The stock had declined 45 percent in the past year before today.
Phone messages left with Icahn and his assistant Susan Gordon weren't immediately returned. He owns about 6 percent of Motorola's stock and is the No. 2 shareholder.
Brown's Goals
The breakup will help speed up the recovery in the handset business and provide ``clarity of direction'' for customers and employees, Brown said. Motorola has shed businesses in tough times before, including its Freescale chip division in 2004.
``Each company would benefit from improved flexibility, a capital structure more tailored to its individual business needs and increased management focus,'' said Brown, who took over after Ed Zander stepped down at the start of this year.
He declined to comment on the impact on earnings or what will happen to the Motorola brand name.
The handset business lost $388 million last quarter. The networks and set-top box unit had a profit of $192 million on 11 percent sales growth, while the unit making radios and scanners had a profit of $451 million on a 35 percent revenue increase.
Motorola made 19 acquisitions in two years to bolster the units. Its purchase of Symbol Technologies Inc. last year for $3.9 billion made it the biggest seller of handheld scanners with built-in computer features to track goods.
`Underlying Problems'
Motorola lost market share in phones last year after failing to come up with a hit successor to its Razr, which created the category of slim phones when it was introduced in 2004. The Razr, which initially sold for $500, has since lost its cachet. In some cases it's available for free with a contract. While all its main rivals boosted sales in the fourth quarter, Motorola's phone shipments plunged 38 percent.
``The Razr was so successful as a unique product that it masked a lot of the underlying problems,'' said Michael Walkley, an analyst at Piper Jaffray & Co. in Minneapolis. ``Once Razr sales started to fade, their cost structure wasn't competitive, especially now that they don't have the right products for the market.''
Apple introduced its Web-browsing iPhone, which combines a touch-screen mobile phone with an iPod, in June. The company sold 2.3 million of the devices in the holiday quarter. Motorola's Razr sequel sold 1.5 million units in that period.
Sales Plunge
Motorola started selling the world's first commercial mobile phone, the DynaTac, in 1984, after gaining regulatory approval for the device the year earlier. It created the first prototype for the product in 1973.
The phone acquired further cachet in 1987, when fictional financier Gordon Gekko, played by Michael Douglas, used the model to make deals in the movie ``Wall Street.''
In 1996, Motorola introduced the $1,000 StarTac, among the first handsets to flip fully open. After its appeal faded, the company lost its No. 1 position in 1998 to Nokia, whose candy- bar-shaped phones won over customers in Europe and Asia.
To revive sales, Motorola brought in Zander in 2004. He introduced the Razr later that year.
The device, which sold more than 110 million units, helped Motorola cement its position as the second-largest handset maker and fend off Asian competition until last year. Samsung Electronics Co. took over the No. 2 spot from Motorola in the second quarter with its sleek Sync and BlackJack devices. Sony Ericsson Mobile Communications Ltd. may steal the No. 3 position this year, demoting Motorola to fourth, analysts say.
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