Motorola to Spin Off Chip Operations

Spin-off will allow the company's Semiconductor Products Sector to conduct its own business deals.

Motorola Inc. said Monday it will spin off its chip operations into a separate company, prepping the spin-off for a public offering at a future date.

The spin-off will give the companys Semiconductor Products Sector (Motorola SPS) the freedom and leverage to conduct its own business deals, using capital it can raise from the public markets. Current SPS President and CEO Scott Anderson will lead the new unit, which does not yet have a name.

Motorola officials said the uptick in the chip sector made the time right for Motorola to spin off its chip business, given that the SPS subsidiary has historically negotiated its own technology sharing agreements and other deals. Motorola said it was considering a public offering of a portion of the SPS unit, using the capital for acquisitions and to develop new intellectual property.

"Over the past several months, we have carefully weighed the best way to optimize the long-term potential of Motorolas semiconductor business with the leverage we would gain by concentrating our resources on our communications products and integrated electronic systems businesses," Christopher Galvin, outgoing president and CEO at Motorola, said in a prepared statement. "After completing our four-month-long technology and strategic reviews in August, I recommended to the board of directors in September that Motorola focus its future on retaining and augmenting all five Motorola sectors that compose our communications products and integrated electronic systems businesses and that our asset light semiconductor business could prosper as a separate entity. Our board of directors has given its full support to this recommendation."

Motorola SPS, worth $4.8 billion, will control the development of PowerPC products as well as its DigitalDNA embedded processor business. Motorola will continue to own and develop cellular handsets and infrastructure, integrated radio communications, cable and broadband products, and automotive electronics.

Will Strauss, an analyst with Forward Concepts Co., in Tempe, Ariz., said this is a good move for Motorola SPS, which in the past has been hampered by decision-making done by executives in Motorolas Schaumberg, Ill., headquarters. Now the group is free to make its own way in the industry, Strauss said.

"I think this is going to force SPS to do a lot more market review and due diligence—and theyll say they already do that—about whats going on with their competitors," he said. "They will now be in charge of their own destiny."

Strauss also said Anderson will do well as the new companys chief executive because he oversaw many of the units most successful products and knows the Asian market, which is where the new company will find much of its business.

Strauss said he thought Motorola might make this move when Galvin announced last month that he was resigning as Motorola president and CEO.

"When Galvin announced he was stepping down, the concept of SPS spinning off was back on the table," Strauss said. "He had historically been against the idea. ... [The spin-off] finally makes Wall Street happy. And it makes the board [of directors] happy."