Analysts: Motorola’s Handset Spinout Raises Prospects for Core Units

Like a bitter partner after a nasty divorce, the businesses that make up half of Motorola’s $37 billion in revenue may think “good riddance” now that Motorola has chosen to spin off its dominant handset business.

But those various divisions, which range from public-safety radios and wireless network infrastructure to cable set top boxes, wireless LANs and bar-code scanners, will now have to stand on their own, without the financial benefit of the division that generated half of the company’s revenue.

“Now they will have to sink or swim on their own,” said Phillip Redman, research vice president at market researcher Gartner.

That could mean that those other Motorola businesses now have an opportunity to “blossom over time,” rather than being dragged down by the sinking mobile device business, said Ellen Daley, principal analyst at Forrester Research. “There is an opportunity now to build up another whole brand in that other $18 billion business,” she added.

Without the distraction of the problems faced by the mobile handset business, Motorola executives can focus more closely on those businesses, observers believe.

“I think when a company is bleeding, others will suffer from managerial inattention,” said Shiv Bakhshi, director of mobility research at IDC. “Management was looking to shore up the high profile business, so other businesses being wrapped up in the story of Motorola sliding from number one to number two on the handset side was demoralizing for those other businesses,” he added.

How much those other Motorola businesses have suffered is anybody’s guess, but Motorola is still “by far the leader” in public-safety radios and networking. And it is either second or third behind Cisco Systems in wireless LAN technology thanks to its acquisition of Symbol, and has a commanding position in the set top box market ahead of Cisco’s Scientific-Atlanta unit, Daley said.

Will the other units flourish?

But its different units have had varying success in the recent past. “The government side is doing well. The network infrastructure group hasn’t grown. The enterprise group hasn’t grown, but their set top box business has grown,” said Redman.

He believes that for Motorola to grow its networking division, it will need to find a partner. But the move to separate the handset organization “makes it easier to go to an outside partner,” added Redman.

With the separation of the businesses and the disruption caused by it, competitors will likely try to capitalize on the confusion to grab more market share. “Any time there is a split like this, there’s an opportunity for competitors to take advantage of the fear, uncertainty and doubt created by a major divesture like this. We’ll see some of that in the short term,” commented Abner Germanow, director of enterprise networking research at IDC.

But most observers agree that customers will continue to have confidence in Motorola’s other businesses. “I think lot of enterprise folks may think it’s good they don’t have the distraction anymore,” said Michael King, research director at Gartner. “The cable business is still a huge company by any standard. I don’t think -will these guys be around in five years’ is a question anyone will ask of Motorola,” he said.

The challenge for Motorola now is to move beyond its “one hit wonder” and create a more stable and consistent business across a larger number of product lines, Redman said.