Motorola Split: Timely Breakup or Pure Fantasy?

Without the benefit of hindsight it is difficult to say whether or not it was necessary to break up {complink 3538|Motorola Inc.} in order to save its wireless handset business, the cable modem and set-top box unit, or the networking equipment operation.

Necessary or not, on Tuesday, Jan. 4, Motorola completed the planned breakup of its operations into two independent, publicly traded businesses, Motorola Mobility and Motorola Solutions. Don't get me started on the names. Was the management so wedded to the Motorola name the two co-CEOs of the old Motorola couldn't agree on which new business would inherit the old nomenclature and which should get a completely new identity? Or, was that decision kicked down the road?

In any case, now we have the companies starting out with what amounts to a nightmare for their sales, marketing, and communications executives. Imagine the conversation:

    No, I am with Motorola Solutions, the networking equipment business. I am not with Motorola Mobility. You don't understand the difference? We were once together but we became separate businesses. They sell cellular phones. No, we don't sell set-top boxes. That would be Motorola Mobility. Yes, I meant, no, we are separate companies but…

You get the picture. That's the first bit of confusion Motorola Mobility and Motorola Solutions must now confront. But there are more substantive problems ahead. Will the break up solve the fundamental weaknesses that hurt Motorola Mobility's wireless handset division and reduced it to the No. 5 global vendor from No. 2 only a few years ago? If you are wondering where I stand on that issue, I am convinced the company's future survival and profitability do not hinge on whether or not it's a part of a bigger company.

Remember Motorola's Semiconductor Products Sector? Motorola SPS, as it was known in the 90s and in the early part of the last decade, was considered a less nimble player as a part of Motorola and spun off as {complink 2134|Freescale Semiconductor Inc.} in 2004. Years later, Freescale is still struggling with billions in debts, although, operationally, the company has begun registering a much needed turnaround.

{complink 9538|NXP Semiconductors N.V.} also went through the same wringer after being spun off from {complink 4267|Royal Philips Electronics N.V.}. Like Freescale, NXP is still struggling with debts and trying to reestablish its footing in markets it once dominated. The spinoff might have helped, but there's no concrete evidence to prove this. Certainly, spinning off a components business from a large OEM would help pull in sales from vendors that compete with the former parent, but that's about the most important benefit anyone can point to.

So, will Motorola Mobility really regain lost ground in the wireless handset business following its establishment as an independent enterprise? Equity investors seem to think this was a positive move. They pushed up Motorola Mobility's stock price on its first formal day of trading to $33.45, although by the next day it had moved down more than 2 percent, to $32.25.

Motorola Mobility's independence day won't be spent celebrating. While the company was house-cleaning ahead of its independence, rivals were eagerly raiding its market share. Motorola has embraced {complink 2294|Google}'s Android operating system and used this to position itself as a more serious player in the mobile handset market.

It must, however, compete against a bunch of other manufacturers, including {complink 4751|Samsung Electronics Co. Ltd.}, now the second-biggest global mobile phone maker. Also, if Motorola Mobility's goal is to take on {complink 379|Apple Inc.} in the wireless handset market, it is chasing a rather fast-moving, nimble, and wily foe and would need more than just the fleeting boost from a spinoff to nail its target.

Motorola Mobility is back, but the market meanwhile has moved on to other products, like tablet computing devices such as the iPad from Apple. Is Motorola Mobility planning a tablet device, or is it charging in with a smartphone buggy?

6 comments on “Motorola Split: Timely Breakup or Pure Fantasy?

  1. eemom
    January 5, 2011

    Bolaji – thanks for posting this article.  When I first saw the announcement about the Motorola split, I must admit that the name(s) of the two companies was the first thing I wondered about.  How can two separate companies be named Motorola?  As you mentioned, when Motorola spun off its semiconductor division, it named it something completely different.

    Since I trust that the Motorola management thought of the issues that lie ahead in having one name, I wonder if there was an ulterior motive to it.  Is one being primed to be sold and is hanging on to the Motorola name for credibility?

    It looks like Motorola Mobility just offered a 1 for 7 reverse stock split.  Does this show a lack of faith in the company's future outlook?

    I know my post generates more questions than answers, but I did find this very perplexing.


  2. DataCrunch
    January 5, 2011

    I agree that the names are confusing, especially since both companies are involved in mobility solutions and devices.  It would have been an opportune time to rebrand one or both of the companies.  As for Motorola Mobility, which has been struggling for many years, has finally produced a profit with the success of the Droid.  At least they are starting 2011 with some momentum and from what I understand the company plans to release a tablet on the new Honeycomb OS.

  3. bolaji ojo
    January 5, 2011

    I can only guess that eventually one of the two Motorola companies will dump the name. I understand they may want to keep the name associated with Motorola for as long as possible but branding one of the two with a new name should not hurt on a longer term basis.

    You mentioned the reverse stock split. I don't believe this represents lack of confidence in the company. This is typically done in the industry to ensure a company continues to meet listing requirements. In the case of Motorola, they may have done this to avoid slipping below the requirement and also to reduce the total number of stock outstanding, which would help when calculating earnings per share.

    By the way, Motorola answered the last question I had in the column. Yes, they are coming out with a tablet. I was glad to read about it because it means they are truly fighting to be competitive.

  4. bolaji ojo
    January 5, 2011

    You were right. Motorola Mobility just announced its first tablet device, the Motorola XOOM. I can't wait to take it for a test ride. The company also introduced the Atrix smartphone, which it described as the “world's most powerful smartphone.” Watch for the specs in my next blog. This may not be your daddy's Motorola anymore!

  5. Mydesign
    January 6, 2011

        Thanks Bolaji, for posting the latest happenings in Motorola. Motorola may have n number of reasons for clarifying and justifying the division.  Some of the global brands used to split up their internal divisions for better administration and management, So that each groups can be more concentrate in their productive side.  “Divide and rule” , is an old strategy and Motorola is trying for that in a new way.  Motorola is a globally accepted brand name and they may need to retain the name for all their sub divisions also.

        They might think that the same brand name can help them to drive the business up to an extent, which didn’t work out for the new names like Free scale and NXP semiconductors.  For marketing products, global brand names will help them, up to a certain extent. Since Motorola is an old brand and have a good name in market, it’s easy for them to introduce new products in the same brand. Even majority of customers are also giving much importance to the brand name, rather than quality.

  6. mfbertozzi
    January 6, 2011

    Very interesting posts from everybody. I would report something more. Based on my experience, split process especially for worldwide company achieves a results really related to the region. At the time of worldwide Ericsson split to bring on the market special focus on enterprise, newco origined (it was Damovo) achieved unpredictable results in some regions and full shutdown in others. Despite Ericsson brand (was) is worldwide recognized. Is Motorola, in your view, in different condition respect to mentioned scenario?

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