Motorola reinvention as two companies starts new era
By Sandra Guy Business Reportersguy@suntimes.com January 4, 2011 12:05AM
Updated: September 24, 2012 6:25AM
Chicago’s pioneering electronics company breaks into two pieces today: Motorola Mobility, the cell phone and cable set-top box business, and Motorola Solutions, the bar-code scanner, public-safety radio and radio-frequency identification reader business.
Motorola got its start with breakthrough technologies that developed first-of-its-kind radios, walkie-talkies, cell phones and even televisions. The pioneer of the cell phone grew quickly, developing successful products in the 1990s, but then the cell phone maker lost its market-leading position. It suffered a series of job cuts over the past 10 years.
Motorola shareholders of record on Dec. 21 will receive one share of Mobility for every eight shares of Motorola Inc. they already held. Motorola Inc. shares will then go through a 1-for-7 reverse split and become Motorola Solutions shares.
Co-CEO Sanjay Jha will lead the cell phone business, which is just emerging from a long slump. Mobility will start as an $11 billion to $12 billion in revenue company.
Co-CEO Greg Brown will lead Solutions, the professional business that has become the crown jewel of the company’s portfolio, which will become an $8 billion to $9 billion revenue company.
How much stronger is Solutions? Mobility had $2.9 billion in sales in the most recent quarter and $3 million in operating earnings. Solutions segments’ revenue was much less, $1.9 billion, but its earnings were far stronger, $321 million.
Morningstar analyst Joe Beaulieu has said that public safety is Motorola Solutions’ strongest business because Motorola enjoys longtime clients who buy its emergency-response systems, and police and fire departments are hesitant to change their communications systems. Motorola Solutions is also set to benefit from retailers’ increased use of radio-frequency identification to manage and track inventory, and healthy sales of its products overseas. About 65 percent of Motorola Solutions’ revenues come from government clients, with the rest from businesses. It projects long-term growth of 5 to 8 percent a year.
Solutions will continue to be based in Schaumburg, while Mobility will take up a temporary home in nearby Libertyville. Motorola officials have said that it may later move its headquarters team to San Diego, Calif., the San Francisco area or Austin, Texas.
Here’s how it came about: Soon after the RAZR flip-phone fell in popularity and Motorola dropped to No. 3 in the industry, billionaire activist Carl Icahn bought a 1.4 percent stake in Motorola. Icahn started pushing hard for a company breakup in order to attract a top management team and adequately value the cell phone business. Icahn now is Motorola’s largest shareholder, with 11.3 percent of the shares.
Jha acknowledged that Motorola Mobility faces a test right out of the gate when Apple’s iPhone starts being sold by Verizon Wireless — the carrier that Motorola has relied on to promote its DroidX and Droid 2 smartphones, which are based on the Android operating system. The iPhone currently is available only through AT&T.
“There are headwinds,” Jha has said, with both the iPhone entry with Verizon Wireless and the typically low sales of cell phones in the first three months of a New Year. But he said Motorola is gaining smartphone loyalists in the United States, as well as in China and Latin America. Motorola developed 22 smartphones in 2010.
Motorola Mobility will be showing off its latest innovations at the Consumer Electronics Show this week, including a tablet computer running Android 3.0 Honeycomb, which the company touts as being able to out-perform Apple’s iPhone and Samsung’s Galaxy Tab.
Jha, who ranked as the Chicago area’s No. 1 CEO in total pay and No. 2 nationwide in 2009, is set to reap about $100 million in an “inducement award,” paid over three years, if the new company has a successful start.