Under the pressure, it finally cracks

Motorola Inc. intends to reinvigorate its floundering business by spinning itself off into two separate companies while still maintaining its suburban and Chicago operations, the company announced Wednesday.

The company's Mobile Devices business will remain based in Libertyville while its other businesses, including cable set-top boxes and government communications devices, will be grouped together in another company.

The legendary Motorola name, which has become a trusted household word for decades, remains in limbo as executives decide which, if any, of the businesses will keep the name.

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Chief Executive Officer Greg Brown, who has been under pressure from shareholders including billionaire investor Carl Icahn, said he aims to redirect the businesses back to their roots.

"We want to combine more enhanced and rich experiences with innovative hardware designs that Motorola has traditionally done and which Motorola was once known for," Brown said during an interview.

The TV set-top box and communications equipment businesses would remain under the stewardship of Brown. A search is under way for a new CEO for the handset business.

No immediate changes are planned for the work force or for suburban offices, Brown said.

Brown said splitting into two companies, expected to happen next year, will help solve problems that led the Schaumburg company to spiral both financially and in global market share.

"The creation of the two independent, publicly traded companies provides improved management focus and a capital structure that is more tailored to the individual business needs," Brown said. "And I think it will provide some improved alignment and agility and competitive effectiveness and will help us going forward."

While some Wall Street analysts felt the breakup, speculated for months, was a good move, some wondered if it would really fix deeply rooted internal issues.

"Absolutely not. This doesn't solve any of its problems," said Jane Zweig, chief executive of Columbia, Md.-based The Shosteck Group, which analyzes the wireless industry. "Has Motorola clearly defined where most of the problems are? Yes. Can they recover quickly? No."

After Motorola's ultra-thin Razr mobile phone became popular in 2004, its later versions remained flat and often were given away for free with wireless service promotions. It was as if the business became a one-trick pony after many innovative engineers were laid off and revenues tanked, leading to a 38 percent loss last year.

The Razr's design started under then-CEO Christopher Galvin, who was later forced out in favor of industry veteran Ed Zander. While the business initially received a boost from the Razr, its later versions couldn't maintain the momentum and floundered. Zander resigned last year and was replaced by Brown.

"There's been no sale sign on Mobile Devices since we announced our new strategy on Jan. 31," Brown said.

That's when Motorola said it would consider "strategic options" to re-invigorate the floundering mobile phone business.

The company has also come under pressure from investor Icahn, who has been calling for splitting up the company. Icahn has increased his ownership in Motorola to 6 percent, campaigned heavily to add four colleagues to the board, and filed a lawsuit this week seeking documents related to the mobile devices business.

Icahn called Wednesday's announcement "much delayed and long overdue" and continued to push for the election of his four board members. In a statement released late Wednesday, he also said Motorola had moved too slowly.

"As one of the largest Motorola stockholders, I continue to have concerns about the speed and manner in which a new management team is selected for the mobile devices business and the separation transaction is consummated," he said. "Time is of the essence, and decisive action is required to reposition the mobile devices business for success as an independent company."

If approved by regulators, the split won't happen until 2009, and Motorola did not have immediate responses to many questions: Which company will carry the Motorola name? What is the other company name? What will happen to the work force?

Brown said Motorola hadn't determined whether shareholders would receive a distribution of stock from the cell phone company or Motorola's other segment. The company said it anticipates the transaction will be tax-free, allowing shareholders to own stock in both of the new companies.

Jeff Kagan, an independent telecommunications analyst in Atlanta, said the split would be a good move.

"It will be a while as the two companies gear up to compete," said Kagan. "So it will be a while before we know if this will make a difference. The good news is this is a major move in the right direction."

The decision to spin off Mobile Devices will help the business in the long run, said Mark McKechnie, a telecom analyst with American Technology Research in San Francisco. He upgraded the stock from "neutral" to "sell."

"This business will still have a tough 2008, but we see its turnaround in 2009 and 2010," said McKechnie. "It should take around six months to get a new CEO, a new plan and a new strategy on whether it will go after Nokia again or a more niche market, like RIM or Apple."

Motorola shares climbed 26 cents, or 2.7 percent, to close at $10.02 Wednesday.