Motorola to split business into two in 2011

NEW YORK (Reuters) - Motorola Inc said it aims to split into two companies in the first quarter of 2011, one to focus on cellphones and television set-top boxes, and the other on enterprise networking.

Motorola said on Thursday that splitting into two independent and publicly traded companies would help improve its position in the different markets.

Motorola shares rose 2.3 percent to $6.80 in extended trade after the news, which followed months of speculation over what steps management would take to revive its business.

The company’s money-losing mobile devices unit has been struggling to compete with new smartphones, and has not had a blockbuster since the Razr, although its Droid phone generated some buzz since launching late last year.

Its set-top box business had also suffered due to a weak economy, while its wireless network equipment business had been hit by a consolidation among telecom operators.

“It’s hard to work with a company when you don’t know where they’ll be a year from now. So this removes uncertainty,” Broadpoint Gleacher analyst Mark McKechnie said of Thursday’s announcement. “I do think the smaller divisions can offer some operational efficiency and focus.”

Motorola’s latest financial results show its mobile phone business had revenue of $7 billion for 2009. The enterprise wireless business had revenue of $2 billion while home and network sales brought in another $2 billion.

“We believe that as independent companies each business will be best positioned to successfully pursue the respective strategies and opportunities for growth,” said Greg Brown, who was co-chief executive officer of Motorola and will now become CEO of the enterprise mobility and networking business.

Sanjay Jha, the company’s other CEO, will head the mobile devices and home business, it said.

Motorola said the move will take effect through a tax-free stock dividend of shares in the new company. Its enterprise and network equipment business will be the entity responsible for Motorola’s current public debt and will be capitalized to achieve an investment grade rating, it said.

Both companies will use the Motorola brand. Additional details including the capital structure of the companies will be announced later, it said.

Jha said that the combination of businesses dealing with mobile phones, cable set-top boxes and other home entertainment devices was ideal to meet consumers’ demands for “converged” or seamless access to television, phone and Internet.

Motorola had previously said it would split its handset unit from its other divisions, but executives also looked at other alternatives.

Motorola had tried to sell its networking division but a source familiar with the matter recently said the process had slowed down.

Tavis McCourt of Morgan Keegan said he was not sure whether the combination of the handset and cable set-top box businesses would yield synergies, but still saw the plan as positive.

“I’m glad they’re doing it. It’s nice they’re putting timing behind it. It’s a sign they’re very confident in their handset business this year,” he said.

The company reiterated that it planned to make the mobile device business profitable in 2010. (Reporting by Ritsuko Ando and Sinead Carew; Editing by Gary Hill and Richard Chang)