Motorola's breakup

Martin Garner/Ovum
28 Mar 2008

Motorola has announced it is starting the process of splitting itself into two publicly traded companies: one consisting of the handset division, the other taking the Broadband and Mobility Solutions division.

This is the outcome of a review kicked off earlier this year by CEO Greg Brown.

The process is subject to various financial, tax and legal analysis and is expected to complete some time in 2009.

This will be a big relief for Motorola investors. It promises a new start for the very troubled handset division, but it does not solve its 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‾

A string of senior executives has departed the handset division recently and, although Greg Brown has personally taken charge of the division, it is clearly not just wounded now but suffering very badly. Something needed to happen.

This split will give the division an opportunity to draw a line under the recent past and offer it a new start as an independent entity, free of (most of) the corporate baggage, able to attract a new management team and then build its own position in the market.

That's the theory.

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.

Of course there is a lot of work going on at present to develop new products. But, as we have said before, Motorola's Device Division management faces a really tricky balancing act during 2008: how to give the new products enough attention and motivate key staff, while limping through 2008 on an inadequate portfolio with a strong position only in the US (where the threat of recession could slow the market) as well as Nokia and Sony Ericsson explicitly targeting market share gains in its home territory.

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