Motorola plots its comeback as cellphone icon

ByABC News
April 23, 2008, 11:43 PM

SCHAUMBURG, Ill. -- 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.

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.