Motorola Begins Anew As Two
By BRIAN DEAGON, INVESTOR'S BUSINESS DAILY
Posted 06:51 PM ET
investors.com
The split-into-two is the latest move by an 82-year-old company that's made (clockwise from top left): World War II walkie-talkies, the communication...
The split-into-two is the latest move by an 82-year-old company that's made (clockwise from top left): World War II walkie-talkies, the communication... View Enlarged Image
Motorola (MOT), one of America's oldest tech companies, on Tuesday will end a three-year restructuring and be born again with its official split into two publicly traded firms.
Many analysts say the company took the right track in splitting into new companies Motorola Mobility and Motorola Solutions. Solutions will sell communication systems and scanners for governments and business. Mobility will sell a line of Android cell phones, cable set-top boxes and video delivery products for the home.
"These are two very different companies with very different stories," said Matthew Thornton, an analyst with Avian Securities. "It's hard to characterize that one is better than the other.
"Motorola Solutions has nice cash flow, not a ton of growth but a steady business that has been very healthy throughout downturns. With Motorola Mobility, there is more volatility but also more opportunity."
Motorola was founded in 1928 as a developer of radio technology. It later built the first walkie-talkies used in WWII, then made radios and TVs. Neil Armstrong spoke his famous "one small step" phrase on the moon in 1969 using a Motorola communication system.
In 1983, the company introduced the first commercial cell phone, the DynaTAC 8000, used by Gordon Gekko in the movie "Wall Street."
Motorola emerged from the rubble of the dot-com bust with the Razr flip phone in early 2005. The blockbuster phone nearly enabled Motorola to topple Nokia (NOK) to become the world's No. 1 handset maker. That party ended in 2007 as Motorola rode the Razr's edge too long and got cut. Unable to develop a successful follow-up to Razr, it watched its revenue and profit plunge.
Pressured By Carl Icahn
In March 2008, bowing to pressure from billionaire shareholder activist Carl Icahn, Motorola said it would split into two publicly traded companies. Icahn Associates owned 11.4% of Motorola's shares, making it the company's largest shareholder, said Thomson Reuters.
On Dec. 21, shareholders received one share of Motorola Mobility for every 8 shares of Motorola. They will begin trading under the ticker MMI on Jan. 4. Motorola Inc. will then effect a 1-for-7 reverse stock split, change its legal name to Motorola Solutions, and trade under the ticker MSI. Both will trade on the New York Stock Exchange. The MOT ticker will then be retired, after 48 years.
Co-CEO Sanjay Jha will be CEO of Motorola Mobility, while co-CEO Greg Brown will head Motorola Solutions. Like Motorola, both will be based in the Chicago area.
Jha was hired as co-CEO in 2008 after being chief operating officer of Qualcomm (QCOM). He quickly pushed Motorola into the Android market, right when the first version of the Google-backed (GOOG) operating system was released. Motorola released its first Android phone in September 2009, followed soon by its first Droid, which became Motorola's marquee line. This year, Motorola has launched 23 different Android smart phones, with and without the Droid brand name.
"Sanjay did the right thing by focusing on smart phones and hitching its cart to Android," said Mark McKechnie, an analyst with Gleacher & Co. "It's a big opportunity.
"The most important metric for me will be Motorola's overall share in handsets and tablets going forward."
In 2011, McKechnie estimates Motorola Mobility will reach sales of $12.4 billion and earn $1.10 a share. The cell phone unit accounted for two-thirds of Motorola's sales last quarter. Mobility will have $3.5 billion in cash, no debt and a portfolio of 16,500 patents.
Once A Strong No. 2
Motorola Mobility has a lot of ground to make up. Once the No. 2 handset maker worldwide, it fell out of the top five in the third quarter of 2009. It's now No. 7, says market tracker Gartner.
The smart phone competition is tough. Rivals include iPhone maker Apple (AAPL), BlackBerry maker Research In Motion (RIMM), Nokia and other makers of Android phones, including Samsung and HTC.
"They (Motorola) have basically staked their future on Android," said Jack Gold, founder of research firm J. Gold Associates. "As the Android tide rises, which it is, unless they do something foolish they will ride with it.
"It's basically a battle between the Android and iPhone. In the next 12 to 18 months, all Android phones will vastly outsell the iPhone. For Motorola, riding the Android wagon was the right approach."
Gartner says smart phones will account for 46% of all cell phone unit sales in 2014, up from just 14% in 2009.
At next week's huge Consumer Electronics Show in Las Vegas, Motorola is expected to announce its first tablet computer, which will use Google's Android tablet operating system.
Motorola Solutions, meanwhile, will have revenue of $7.9 billion and earnings of $2.37 a share in 2011, up from $7.75 billion this year, McKechnie estimates.
In the first nine months of 2010, 65% of Motorola Solutions sales came from government contracts, with the rest from businesses, Motorola says. It will start its independent life with $5.3 billion in cash and $2.9 billion in debt.
The company is selling its cellular network infrastructure business to Nokia Siemens Network for $1.2 billion, a deal expected to close next quarter.
With the split, Motorola Solutions, which has been the primary cash generator for the old Motorola, won't have to fund the mobile unit.
"A lot of cash was invested in the mobile unit for its turnaround," Thornton said. "They had been held back from growing their business.
"Now they have an opportunity to reinvest, issue dividends, buy back shares and do acquisitions." |
