Motorola’s decision to split the company is seen as a move in the right direction in trying to recover the struggling handset business. The company admitted it was considering the possibility in February, amidst growing speculation about its future, spurred on by the revelation that its mobile division was on a downward spiral.
The break up of the business will be completed next year, and will result in two separate companies, one focusing solely on mobile handsets, and another concentrating on equipment for cable television and mobile networks.
Analysts welcome the move. ‘This will be a big relief for Motorola investors… In January this year Motorola broke the news that the handset division’s performance was not improving… at that point it was clear that the logic for holding the company had gone… It promises a new start, but does not solve its problems,’ Martin Gartner, mobile director at Ovum commented.
The break up could bring more stability to the management of the company, following the recent executive exodus.
Motorola’s second largest share holder, Carl Icahn, has been calling for the separation for some time already, claiming that the management would not be able to turn around the loss making handsets business.
But CEO, Greg Brown said that the decision followed a review by the management and the board.
He said in a prepared statement: ‘Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus – as well as more targeted investment opportunities for our shareholders.’
Now that Icahn has succeeded in convincing the board to break the company up, he is piling on the pressure to get Keith Meister, the head of his £4 billion investment fund, to be appointed as the CEO of the new handset business.
Motorola’s real test will be whether it can keep the networks on its side until it delivers new, compelling products. Relying only on one handset model has been the main cause of the company’s downward spiral.
The split of the company gives new fuel to the speculation that Motorola is up for acquisition. Motorola’s share price increased 54 cents as a result of the announcement.