Motorola's potential breakup pleases investors, confuses analysts

Motorola Inc.'s announcement late Thursday that it would consider selling or spinning off its struggling cellphone business was popular on Wall Street Friday, but technology analysts question whether a separate venture will fare any better in the competitive mobile handset market.

Shares in the Schaumburg, Ill.-based company moved up $1.40 US to $12.90 US, a 12 per cent rise, at the open of trading Friday in response to the news before dropping down to $12.69 US at market close.

Investor and billionaire financier Carl Icahn, who led the call for a drastic overhaul of the company including the split of its handset unit, said on Friday he was "pleased" Motorola is exploring his proposal.

Two years ago, Motorola's handset sales were riding high, buoyed by sales of its sleek Razr phone. Since then, Motorola's flagship division has been in free-fall, with handset sales down 38 per cent in 2007 from the previous year and worldwide market share plummeting from 23 per cent to 12.2 per cent in the same period, according to research firm IDC.

Motorola currently trails Nokia, which has 40 per cent of the market, and Samsung, with 13.9 per cent, according to IDC.

"It's been an atrocious year for them," said Mark Tauschek, a technology analyst with U.S.-based Info-Tech Research Group.

"The trouble with a downhill slide is it snowballs, and people are kicking you as you're going down."

Should Motorola spin off or sell the division, it would be left with its two other main units, one that builds wireless networks for companies and one that makes television-set-top boxes and modems for home use.

Motorola said separating the mobile business would "permit each business to grow and better serve its customers."

Gartner analyst Phillip Redman questions whether selling the division that is the public face of the company will effectively end the 80-year-old firm's relevance.

"The challenge they'll have is if they spin off that part, they are going become a fairly insignificant, niche player," said Redman.

"Right now, it's the handset business that keeps their brand out there and they are not really going to have a ton of visibility worldwide."

The mobile unit reported revenues of about $19 billion US in 2007, making them a potentially attractive option for an outside buyer, said Redman.

A Chinese telecommunications vendor such as Huawei Technologies Co Ltd. or ZTE might be potential buyers should Motorola decide to sell, rather than spin off, the division, he suggested.

Division would do little for buyer: analysts

Info-Tech Research Group's Tauschek also suggested Samsung or another major player might look to acquire the division in an effort to close the gap with worldwide leader Nokia.

But neither analyst felt buying the division would do much for the purchaser.

Tauschek said past takeovers in the industry, such as BenQ taking over the Siemens mobile unit or Alcatal doing the same for Lucent, have done little for the prospects of the new companies.

"If you add that kind of turmoil, it's very hard for the people in your business trying to come up with exciting new products to keep their eye on the ball," he said.

Motorola is still the number 1 handset maker in the United States and also had a leading market share in Canada of 29 per cent in January 2007, ahead of Nokia and Samsung, according to Kaan Yigit of Toronto-based Solutions Research Group.

But 2007 was such a poor year, Yigit estimates Motorola's share of the Canadian market may have fallen to 24 or 25 per cent.

The problem for Motorola, said Yigit, is that while higher-end handsets like Research in Motion's BlackBerry line or Apple Inc.'s iPhone still inspire loyalty among consumers, the mid-range handset market is harder to keep.

"This sale will have zero impact on consumers," said Yigit. "One person in a focus group told me recently that with each successive replacement or update to a product, he's becoming less emotionally attached to his cellphone."