Only limited relief over Motorola split

chris

Two days ago Motorola decided to split itself into two parts, prompted by uber-investor Carl Icahn. The worry isn’t yet over, say analysts.

Motorola’s decision to divide itself into two separately quoted businesses (Handsets, and Broadband & Mobility) is the result of CEO Greg Brown’s recent review of the overall business. The restructuring now has to jump some key regulatory and financial hoops but is likely to wrap in 2009.

Indeed, some suggest the division might add to, and not cure, problems at Motorola’s handset division. "The announcement increases the turmoil in mobile devices, which has seen four handset chiefs in as many years," said Brian Modoff, telecom analyst at DeutscheBank, talking to the WSJ. "This doesn't give customers clarity, it tells them that the business won't be sold."

Senior Ovum analyst Martin Garner warns that while this current plan will provide significant relief for Motorola’s patient and long-suffering investors, and delivers a “new start” for its “very troubled handset” division, it does not solve all Motorola’s problems.

“In January this year Motorola broke the news that the handset division’s performance was not improving but was going to remain weak for the rest of 2008 while waiting for development of new product platforms, which would enable a broader product portfolio. At that point it was clear that the logic for holding the company together had gone – how could it possibly be of benefit to the rest of the company to have such a wounded handset division hanging around for another 12 months?” asked Ovum’s Garner.

“To make it work Motorola must provide a period of management stability and focused, heads down, new product development. That’s because the company split does not provide a short-term fix for the underlying cause of the problems – the weak handset portfolio. Improving that is a long, hard process,” says Garner.

He warns that network operators need progress in Motorola’s handset developments. “If network operators give Motorola current products the cold shoulder this year, the company may well end up having to cut significant numbers of staff during 2008 and scale back its new product development. That would mean that the New Motorola would emerge onto the market in 2009 as a much smaller player,” says Garner, adding that there is considerable speculation that Motorola-Handset might well end up an acquisition, or JV target.

“Splitting the company like this is the right thing to do. We think it should be done as quickly as possible – within six months if that is feasible – because the longer the current conditions go on, the harder it will be for Motorola’s new handset business when it is formed.”

Ovum’s comments are echoed by similar sentiments from Strategy Analytics. Bonny Joy, Wireless Analyst at Strategy Analytics, said: "A spin-off of the mobile division will enable Motorola to focus on its core competence in cellular handsets. However, we emphasize that this short-term financial fix must not distract Motorola from its long-term operational problems. Motorola Mobile still badly needs to address its core problems of an ineffective supply chain, a weak 3G component strategy and an unattractive 3G handset portfolio."


source: Rapid TV news

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