Update: Motorola may spin off mobile phone division

The handset unit, which hasn't been able to recapture the success of the Razr phone, could be spun off as it is among Motorola's weakest businesses

Motorola may spin off its handset business, the weakest part of a wireless giant that has seen hard times and a management shakeup in recent months.

The company is "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," Motorola said in a statement Thursday. "The company's alternatives may include the separation of Mobile Devices from its other businesses."

The handset unit has had trouble coming up with a successor to the popular Razr phone and in last year's third quarter it fell to third place in worldwide sales behind Samsung. But spinning off the division, which forms the largest part of Motorola's business, would be a drastic move.

Motorola had 13 percent of the worldwide handset market in last year's third quarter, down from a 21 percent share a year earlier, according to Gartner. Samsung had 15 percent and Nokia 38 percent.

Thursday's announcement doesn't guarantee the handset business will be spun off. CEO Greg Brown said in the statement that Motorola was exploring ways in which the unit can recover faster and retain and attract talent, plus help shareholders "realize the value of this great franchise."

In its fourth-quarter results announced last week, Motorola said the Mobile Devices Business lost US$388 million on revenue of $4.8 billion, down from a profit of $341 million on revenue of $7.8 billion a year earlier. Fourth-quarter sales were up in both the Home and Networks Mobility group, which makes set-top boxes and wireless infrastructure, and in Enterprise Mobility, which benefitted from Motorola's acquisition of Symbol Technologies early last year.

Motorola as a whole lost $49 million for the year. CEO Ed Zander stepped down in late November, replaced by Brown.

Such a spinoff is overdue, according to Samuel Wilson, an analyst at JMP Securities in San Francisco.

The phone unit's problems go deeper than a drought of hit products. It needs to act more like Nokia, he said.

"The business model they need to develop is one where they don't try to outguess the market, but instead launch a lot of products and let the market decide what's a hit," Wilson said. Nokia succeeds at this by integrating its supply chain so it can quickly speed up production of products that catch on, he said.

Though the Mobile Devices Business stands out as the "sucking chest wound" at Motorola, the whole company could stand to be broken into three entities, he said. The other two would be the home networking group and the enterprise group.

"There are no synergies between the divisions," Wilson said.

Motorola's stock (MOT) was up $1.24 at $12.74 in after-hours trading late Thursday.

Copyright © 2008 IDG Communications, Inc.

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