The beginning of the 21st century has been replete with American business icons faltering or collapsing altogether. Witness the events at Metro-Goldwyn-Mayer, Polaroid, Sears, Westinghouse, Woolworth, etc.

And now, once mighty Motorola (News - Alert) has announced that it intends to split into two companies: one that continues to design, manufacture and sell mobile handset devices globally (and licenses Motorola intellectual property) and the other making profitable broadband and mobility network infrastructure equipment, such as cable TV set-top boxes and two-way radios, and will service wireless networks. The two companies will operate separately and will be publicly traded. Motorola shareholders will receive a tax-free distribution, subject to further financial, tax and legal analysis, resulting in existing Motorola shareholders holding shares of two independent and publicly-traded companies.


“Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus — as well as more targeted investment opportunities for our shareholders,” Gregory Q. Brown, Motorola’s chief executive, said in a statement.

Motorola would like to split to occur in 2009, if the necessary government approvals come through. The Motorola board is now searching for a new head honcho for the phone business, Brown said.

The proposed split doesn’t come as a surprise to many, since Motorola has faced lackluster business performance and angry stockholders, as personified by its second-largest shareholder, Carl Icahn, who holds about 6.3 percent of Motorola shares. Icahn two months ago demanded that Motorola split into four sections, and a few days ago he began legal proceedings against the company to force it to take action and to gain access to documents related to its board’s discussions concerning its cellphone business. Icahn is also seeking four seats on the company’s board.

Chris Galvin, grandson of Motorola founder Paul Gavin and CEO from 1995 through 2003, recently was quoted as saying that his family has sold 99 percent of their Moto holdings (not exactly a ringing endorsement) and that “Motorola as an innovator is dead and cannot be retrieved.”

Motorola’s stock price plunged 45 percent during the 2007-2008 timeframe. Its brief success with its stylish Razr cellphone, introduced in 2004, ended when the device became old hat in 2006, and Motorola has lost market share to rivals such as Nokia, Samsung (News - Alert) and Apple. Indeed, the past 18 months has not been kind to Motorola’s handset business in general. According to the PMN Handset Industry Insight service, Motorola’s market share fell from 22.2 percent at the end of 2006 to 13.9 percent at the end of 2007. Samsung, on the other hand, had 15 percent and Nokia 38 percent. Whereas global handset industry sales rose by 16.5 percent in 2007, unit shipments at Motorola declined 27 percent. The handset business has reported negative margins in all 4 of its last quarterly reporting periods. Interestingly, each handset Motorola sold in 2007 actually lost the company an average of about US$6.50. The Motorola’s handset business had become its weakest division.

Motorola itself had intimated in January 2008 that it was contemplating a break-up, and had hinted that it might spin off its mobile phone business when CEO Ed Zander stepped down in late November 2007, replaced by Greg Brown (News - Alert). At the time, Motorola said that it was “exploring the structural and strategic realignment of its businesses to better equip its Mobile Devices Business to recapture global market leadership and to enhance shareholder value,” and that “The company’s alternatives may include the separation of Mobile Devices from its other businesses.” After a review of the company’s mobile phone business conducted by the management team, the board of directors and independent advisors, those alternatives are finally coming to pass.

Although spinning off the mobile handset division is a drastic move, it is vaguely resembles the actions of both Nokia, which relegated its network device production into a joint venture with Siemens, and Ericsson, which placed its mobile phone business into a joint venture with Sony.

Motorola has also been pummeled as a supplier of Nextel iDEN phones to another problematic giant, Sprint Nextel Corp., as users abandon the Nextel network. It has also previously cast off business divisions such as its Freescale Semiconductor (News - Alert) chipmaking unit, which was picked up by buyout firms led by Blackstone Group LP.

It should be interesting to see whether Motorola can re-establish itself with a “bifurcated” persona.

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Richard Grigonis is Executive Editor of TMC’s (News - Alert) IP Communications Group. To see more of his articles, please visit his columnist page.