After months of turmoil that has included an exodus of top executives, declining sales, infighting with a top shareholder and a drop in its market position, troubled Motorola is now splitting into two companies.
Officials with the company announced March 26 that it will split into separate businesses, spinning off its handset division, which has been steadily losing money and market share for months. Motorola will keep its other division, which includes networking and enterprise equipment, as well as the government business that focuses on emergency services. The company will refocus on reviving the lesser-known part of the business.
The move comes after outspoken shareholder Carl Icahn and his allies on the Motorola board of directors began adding more pressure on the company to split into two. While Motorola ranks as the third largest cell phone maker in United States-down from No. 2-its handset sales have dropped since the introduction of the popular RAZR model in 2004. The company has not succeeded in producing a successor to the RAZRm, and Nokia and Samsung have dominated the market since then.
In a statement, Motorola CEO Greg Brown said the company already has begun looking for a CEO to lead the new handset company.
“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,” Brown said in the statement.
Michael Sullivan-Trainor, an analyst with Technology Business Research, said the fight over the future of Motorola came down to the legacy of the RAZR and the company’s inability to find a worthy successor.
“It’s a story about the RAZR,” Sullivan-Trainor said. “The RAZR was a product innovation that the company rode too long, and basically they didn’t have a follow-on for it within the handset business. The company was relying on the handset business for all of its income, and so the handset business went south and they didn’t have a follow-up business.”
When Motorola reported its fourth-quarter returns in January, it announced that it shipped 40.9 million handset units, compared with 65.7 million units during the same time last year. Those returns seemed to have given Icahn and his allies the ammunition needed to force the change they wanted.
Struggles Cost Zander His Job
Motorola’s struggles cost CEO Ed Zander his job. Zander resigned in January, replaced by Brown. Since his resignation, Motorola has seen high executive turnover, with new leaders in such areas as technology, finances and human resources.
Under Zander, Motorola slipped from No. 2 to No. 3 among the dominant handset makers. Since Motorola’s mobile devices division represents about half of Motorola’s sales, flattening RAZR sales and the lack of a successful follow-up spelled doom for Zander.
To offset the sales losses, Motorola began a price war in 2007 with market leader Nokia, a move that hurt Motorola’s profits and left it with a lot of unsold inventory. Motorola announced in January another sharp decline in mobile handset sales, resulting in an 84 percent drop in fourth-quarter net income.
The news from the handset division overshadowed the better returns from the other division, which includes a number of consumer and enterprise products. For example, the enterprise mobility solutions division, riding on the strength of the Symbol Technologies acquisition, saw a 40 percent increase in operating earnings at the same time the handset division saw cell phone shipments slip.
Within this division, Sullivan-Trainor said the company will likely refocus its efforts on creating better infrastructure products for both its enterprise customers and consumers. The company can also focus on long-term projects, such as WiMax, which might yield bigger returns in the future but was unable to support the faltering handset division.
The split might also mean the infrastructure division will combine its operations with a company such as Nortel, although the Motorola brand name will likely continue, the analyst said.
“After this split, they are going to evaluate the remaining pieces and see what value they can get,” Sullivan-Trainor said.
The split will take the form of a tax-free distribution to Motorola’s shareholders and allow them to hold stock in both companies, according to Reuters. The move to split the companies should finalize in 2009.