Motorola: Divide to survive‏

Motorola Inc.'s move to restructure the company and separate its struggling mobile phone business from the successful broadband and mobility solutions unit, as announced by CEO Greg Brown, may give the beleaguered handset maker the opportunity to right its leaking ship.
What it doesn't do is change the fundamentals the iconic communications company faces in an increasingly globalized and competitive mobile-device market. And it leaves the door open for up-and-coming handset makers to make their move.

"Motorola today is in the same situation it was in yesterday," said Carmi Levy, senior VP for strategic consulting at AR Communications. "It lacks a viable product map and continues to lose market share to competing vendors that are consistently bringing better products to market."

No hit phones
Not having produced a hit mobile phone since the Razr, introduced in 2004, Motorola has seen its share price decline 45 percent in the last 12 months. Brown, who took over after Ed Zander resigned early this year, is splitting the company into two divisions: the struggling mobile phone business and its broadband and mobility solutions unit, which includes enterprise wireless networks, connected home systems and broadband network gear, including WiMAX technology.

While the handset division has faltered, slipping behind Samsung to fall to No. 3 worldwide in terms of sales, the broadband and mobility unit has enjoyed strong growth in recent quarters.

Revenue from Motorola's enterprise mobility solutions division, which sells wireless networking gear to businesses, jumped 43 percent to $7.7 billion in the most recent quarter, and its operating profit reached $1.2 billion.

One of the benefits of creating an independent, publicly traded handset company is that the enterprise business will no longer be tied to the flailing beast of the mobile phone unit, said Ellen Daley, a senior analyst at Forrester Research.

Divided attention
"The attention that the mobile devices business commands both in company attention and financials does not allow their broadband and mobility solutions units to grow fully and get the corporate attention they deserve," Daley said in an e-mail. "And it's a very different business than making phones that consumers buy."

For Motorola's competitors, the news of the split probably looks like chum in the water. Nokia, which now has a dominant 40 percent market share in global mobile phones, "is in an ideal position to dictate the direction of the market as it continues its transition away from commodity voice-focused handsets toward more feature-rich converged devices," said Levy.

And Samsung, whose recent growth has come at the expense of Motorola, can focus on its product strategy of bringing to market a stream of fashion-forward devices—a niche that Motorola once occupied. Samsung previewed its new ultrathin G810 slider phone at Mobile World Congress in Barcelona, Spain in February.

"What a celebration if you are a competitor," added Daley. "I think if you are Nokia and Samsung, you put your sights on the North American market and grab as much as you can."

In fact, one of the ripple effects of the Motorola announcement likely will be the continued ascendance of Asian device makers, some of which began life as OEMs for better-known Western brands. Along with Samsung, China device-makers HTC Corp. and UTStarcom Inc. are expected to show off ambitious new mobile phone lineups at the CTIA Wireless show in April.

- Richard Martin
Information Week