Talking with Greg Brown, Motorola's new CEO, is a bit like stepping into The Twilight Zone: Both require you to suspend disbelief, at least temporarily, and simply go with the story line.
Brown says the company's board is spinning off Motorola's mot troubled cellphone division for one reason and one reason only: to "unlock" the value of the business, which has no strategic value to the rest of the company.
Carl Icahn, the corporate-raider-turned-shareholder-activist, has pushed Motorola for more than a year to take such a step. Brown says, "That really wasn't a factor."
Even if the handset division were flying high and Icahn hadn't shown up, he says, "The result would have been the same. We would have spun it off anyways."
So it goes these days at Motorola, which is struggling to recover from a string of management, marketing and product blunders. The missteps have left it ill-prepared to compete in the wireless industry it birthed and promoted for more than 35 years.
Motorola's answer, for now, is to split itself into two parts: one devoted to the money-losing handset business, the other to the profitable parts of the company that provide software, hardware and broadband gear to a range of government and corporate customers. About half of Motorola's $37 billion in annual revenue is generated by the cellphone business. The balance is from the other two divisions.
The split, which will result in two independent companies with separately traded stocks, is expected to take about a year to complete. Investors will wind up with shares in both. Brown plans to join the successful part of the business. A search for a CEO for the handset business is underway.
Some analysts are lukewarm, at best, to Motorola's plan. "Breakups don't usually enhance shareholder value," says Mark Sue, an analyst at RBC Capital in New York.
In Motorola's case, Sue thinks the split could actually be detrimental. "It will still be the same company. The brand will be diluted, which is a concern for investors."
On a positive note, Brown's willingness to jettison the storied handset division at its weakest point "hastens change," says John Jackson, a senior analyst at Yankee Group. Otherwise, he says, there probably "would have been a natural inclination" to stay the course "in a hunker-down mode."
Fixing the handset business
Motorola for decades was considered a shining example of American innovation and leadership. Founded as a manufacturing company in 1928, its superstar status was cemented in 1973 when engineers envisioned, designed and produced the world's first cellphone. The 28-ounce phone finally went on sale in 1984, igniting a global wireless revolution.
Now, it's unclear whether Motorola's $18 billion cellphone business can even survive. In the fourth quarter, sales plunged 38%, resulting in a $1.2 billion loss for the division. The nose dive pushed Motorola into the red, setting the stage for its breakup plan.
Motorola's pain is global in nature. In 2006, the company claimed 21.1% of the worldwide market for handsets. By the end of 2007, its share had slipped to 14.3%, according to Gartner estimates. During the same period, No. 1 Nokia nok saw its global share expand to 37.8% from 34.8%. Motorola reports first-quarter results Thursday.
Is the handset business fixable?
Brown doesn't hesitate. "Absolutely," he says.
If that's the case, then why hasn't Motorola already fixed it? "We are fixing it," he says.