Motorola Gambles on Handset Spinoff Delay

It looks like the skeptics were right this time. Seven months after announcing plans to spin off its handset division by next year, Motorola Inc. (MOT) now says the split won't happen before 2010. It's part of a deluge of bad news for the long-suffering cell-phone maker, which has reported a third-quarter loss and decline in total revenues, and ... here's the killer ... a 31% drop in sales at its mobile devices business.

"While our strategic intent to separate the company remains intact, we are no longer targeting the third quarter of 2009, primarily due to the macro-economic environment, stresses in the financial markets, and the changes underway in [Motorola's] Mobile Devices [business]," Sanjay Jha, the recently appointed co-CEO of Motorola and CEO of its mobile devices business, said in a statement.

Motorola is clearly not the only company being forced to scale back its plans due to the weak economy. But Motorola has been struggling longer than most companies, and it's problems cannot be blamed on the economy alone. Indeed, on the same day that Motorola showed such a staggering loss in its handset sales, ABI Research showed that total handset unit sales in the latest quarter rose 8.2%. And although Motorola did manage to hold onto its third-place market share position, the number two player Samsung Electronics extended its lead over Motorola with a 16.6% market share versus Motorola's 8.1%.  

Motorola knows it has to do something drastic. The company is staking the future of its handset business on Google Inc.'s (GOOG) Android operating system in a bid to come up with hits along the lines of Apple Inc.'s (AAPL) iPhone or Research In Motion Ltd.'s (RIMM) BlackBerry.

"It's a risky strategy," says Morgan Keegan & Co. analyst Tavis McCourt, who notes that aside from the iPhone and the BlackBerry, "there's not a lot of successful phones based on third-party operating systems."

And what of the company's plans to spin off its handset business? The new 2010 target date is now so far off that it's hard to predict what the unit will even look like then, let alone whether it will be ready for a sale. If the company's latest strategy for turning around its handset business flops, it could leave the business even further from profitability and less attractive to prospective buyers. - Andrea Orr

  

See March 26 post on Motorola's planned spinoff from Tech Confidential
See Oct. 30 earnings announcement from Motorola
See July 16 post on doubts over Motorola's restructuring from Tech Confidential

Comments

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2008 Nov 02 10:00 AM