Motorola to Spin Off Unit
Motorola Inc. said Monday that it would spin off its lackluster computer chip unit to concentrate on its more important mobile-phone business, which has been losing ground to archrival Nokia Corp.
Once among the world’s top 10 computer chip makers, Motorola’s semiconductor business had an operating loss of $1.5 billion last year despite earning $4.8 billion in revenue.
Investors have been pushing for the Shaumberg, Ill.-based company to shed its Semiconductor Products Sector and focus on its cell phone business. The chip unit accounts for 18% of Motorola’s $26.7 billion in annual revenue, compared with 41% for the phone unit.
The announcement lifted Motorola shares nearly 10% to their highest level in a year. They gained $1.22 to $13.50 on the New York Stock Exchange.
“It’s something they should have done years ago,” said Paul Sagawa, an analyst with Alliance Bernstein in New York.
Chief Executive Christopher Galvin said the move had been contemplated for several months. It is subject to board and regulatory approval as well as market conditions.
“We believe that by creating two independent companies we will be able to better unlock the value of Motorola’s existing businesses,” Galvin said during a conference call with financial analysts.
“It’s an opportunity to move the company forward with a clearer focus.”
The spinoff probably will be one of Galvin’s final acts as chief executive. Three weeks ago, he announced his intention to resign after a disappointing six-year tenure during which the company eliminated nearly 60,000 jobs. Motorola lost $2.5 billion in 2002.
Under Galvin, grandson of Motorola founder Paul Galvin, the company’s share of the global cell phone market fell from 26% in 1996 to 14.6% in the second quarter of this year. Finland’s Nokia claims the No. 1 spot, with 36% of the market as of June.
“The inability of their semiconductor business to compete with rivals has outweighed any minor cost synergies or technology synergies they might have gotten,” said Sagawa, who does not own Motorola shares.
Details of the spinoff remain to be finalized, but Motorola said it was considering an initial public offering of a portion of the semiconductor unit. That would be followed by a distribution of remaining shares to Motorola shareholders.
Motorola, which began 75 years ago as a maker of battery products and later car radios, has been in the microprocessor business for nearly half a century.
After the spinoff, the chip business will be able to pursue acquisitions of additional product lines and technology relating to semiconductors, the company said.
Bloomberg News was used in compiling this report.
