Motorola Morphs into Two Publicly Traded Companies

Following a year in which Motorola lost its standing as the world’s No. 2 mobile handset supplier to Samsung Electronics, the company has decided to split into two publicly traded companies.

One company will handle handsets and accessories, while the other will take on wireless broadband networks and enterprise level communications services, reports CNet News.

The Mobile Devices division of the company generated sales last year nearly equal to those of the company’s other two devisions, but it lost $1.2 billion, whereas the other divisions earned $1.9 billion. 

Investor Carl Icahn, who owns a 6.3 percent stake, has been pressuring for such a separation, and announced earlier this week that he would not take the offer of two seats on the board, and is rather holding out for four seats. He is suing the company to obtain documents related to its mobile devices business and use of corporate aircraft by senior managers, board members and their families. He said his goal was to discover what Motorola should have done to fix its struggling handset business. It is not clear, now that the company is splitting, what his new strategy will be.

The newly separated unit may have an easier time forming joint ventures with other mobile-devices companies in a bid to regain market share and operate more efficiently; in fact, that may be a reason for the separation, according to Avian Securities analyst Tero Kuittinen.

Shares of Motorola have fallen more than 60 percent since October 2006, amid the loss of handset market share and criticism for not having come up with a strong successor to the popular Razr phone, writes Reuters.

The mobile phone industry faces challenges as the steep growth in developed countries has flattened. In a number of developed economies, including the U.K., Italy and Ireland, mobile phone penetration has reached more than 100 percent. In the U.K., for example, there are some 72 million mobile phones, with 1.4 subscriptions per user, according to The Independent. In Japan, handset sales were down 3.6 percent in Q4 07, according to Gartner.

Manufacturers are also struggling because of network operators’ attempts to increase margins by extending contract lengths and spreading the cost of handset subsidies over as much as two years. That increase in length of subsidies means slower churn - bad news for device suppliers.

Convergence - single, multi-function devices that combine voice, internet browsing and music and video - is also pressuring handset makers. Apple and the maker of the Blackberry both appeared for the first time last quarter in Gartner’s top 10 suppliers. As such next-generation devices as the Blackberry and the iPhone show strong growth, voice-only handset sales are slowing.

On the other hand, Gartner still expects global growth in 2008 to hit a healthy 10 per cent. Emerging economies, particularly India and China, have plenty of room for growth, as the mature markets only account for 30 per cent of the world total. 112 million units were shipped in Asia-Pacific in the last three months of 2007 alone.