Motorola to Split Up as Handset Unit Struggles

Motorola said it plans to split into two companies next year as billionaire investor Carl Icahn has urged it to break off the money-losing mobile-phone business that it pioneered 25 years ago.

One company will focus on handsets, and the other will sell network equipment, cable TV set-top boxes and two-way radios -- businesses that are profitable and growing faster. The board is looking for a new leader for the phone business, Motorola said yesterday in a statement.

The decision buys time for chief executive Greg Brown to revitalize the handset unit before the split. Icahn has said the division is undervalued and has demanded that it be separated with new management. Brown was looking for a buyer after sales slid for four consecutive quarters as consumers snapped up phones from Apple and Nokia.

"If they had been forced to sell it off, shareholders would have been forced to accept a bargain-basement price," said Richard Windsor, a Nomura International analyst in London who recommends holding on to the stock. The move is "the one that makes the most sense for shareholders."

Motorola hasn't decided which business will be spun off to shareholders, though the current managers will stay with the home entertainment business, Brown said on a conference call. The Schaumburg, Ill., company wants the move to be a tax-free way to create two independent, publicly traded companies.

"Each company would benefit from improved flexibility, a capital structure more tailored to its individual business needs and increased management focus," said Brown, who took over after Ed Zander stepped down at the start of this year.

He declined to comment on the impact on earnings or what will happen to the Motorola brand name.

Shares of Motorola closed up 2.7 percent yesterday at $10.02 a share.

Icahn, who owns about 6 percent of Motorola's stock and is the No. 2 shareholder, did not return calls seeking comment.

The handset business lost $388 million last quarter. The networks and set-top box unit had a profit of $192 million. Motorola lost market share in phones last year after failing to come up with a hit successor to its Razr, which created the category of slim phones when it was introduced in 2004. While all its main rivals boosted sales in the fourth quarter, Motorola's phone shipments plunged 38 percent.