Has Motorola Lost Its Chance to Spin-off Handset Unit?

What happens to Motorola (MOT) shares if they can’t get rid of the handset business?

Nothing good, is the answer. Oppenheimer analyst Ittai Kidron raised that question in an extremely bearish note on the company Thursday morning. He contends that the continued troubles of the business might force the company to scrap the planned spinoff of the handset operation. “To spin off the handset unit, MOT’s board has to be convinced that the handset unit can be sustainable on its own - not necessarily profitable but with a time line to profitability and enough capital (available or accessible) to get there,” he writes. “We are increasingly inclined to believe this process could be delayed or scrapped altogether.”

Kidron Thursday cut his his rating on Motorola to Underperform from Perform. He now thinks the handset business is worth less than nothing to Motorola; the implication (which he does not say specifically) is that the company might simply be better off shutting it down.

Kidron says the company is not likely to reach its goal of Q2 handset shipments flat to up slightly from Q1. “Our checks suggest continued share losses globally with material losses in its core North American market,” he writes. Kidron also says that company-specific inventory build is developing in Southeast Asia and Europe. “With the handset business finding no bottom, we question whether its planned spin-off can still occur on time if at all. We’re inclined to believe MOT might have to keep its handset unit, which would hurt the stock. We now apply a negative value to the unit and see further downside to the stock.”

For 2008, Kidron now expects the company to post a loss of 2 cents a share; he had expect a loss of a penny. For 2009, he sees EPS of 28 cents, down from 59 cents.

Motorola Thursday is up a penny, at $9.19.