Archive for the ‘Why Splitting Up Motorola Is a Bad Idea’ Category

Why Splitting Up Motorola Is a Bad Idea

March 26, 2008

This morning, Motorola, an 80-year-old tech icon with a history of innovation, announced it was splitting up the company into two pieces: its flagging cellphone unit is one piece and the other is its broadband and mobility operations, which make wireless networking gear and television set-top boxes. Motorola shareholders would receive stock in both companies.

I know Motorola shares are up 5% on the news. But this seems like a bad idea to me. Motorola’s number one problem at the moment is that its cell phone unit has not come up with a hit product in a few years since releasing the Razr phone to great fanfare in 2004. Separating the weak handset division, which accounts for about 53% of revenues, from the growing enterprise units is not going to solve those issues.

In fact, a split-up will probably exacerbate problems in the handset division. Instead of focusing on creating a great product, the company is going to be distracted by a messy break-up processs, a reverse merger in a sense. What’s more, the separated units will have fewer resources to invest in the future, and there will be the inevitable round of lay-offs. The most valuable remaining employees will probably bail the sinking ship and get another job. One more reason: Apparently, no major handset maker has any interest in buying Motorola’s cell phone unit. If this deal does go through shareholders are going to get a real low-ball valuation.

So why is the company doing this? Mainly because it seems like the most simple answer in the short term, I suppose. Carl Icahn has been hammering the company’s management, and its stock has plunged 45% over the last year. New CEO Greg Brown feels like he has to do something. The split-up creates the impression of forward movemement.

But the truth is there is no quick fix for Motorola. If Brown had cojones, he would keep Motorola together, double down on investment, and swing for the fences. This is not IBM or Hewlett-Packard, after all. It’s a $36 billion conglomerate with three divisions that all operate in basically the same business. Brown’s challenge is relatively straightforward and manageable. All he needs to do is come up with a hit product and Motorola will be fine. Isn’t that why people want to work in the technology industry? Instead Brown is taking the easy way out and putting one more nail in the coffin of an American icon, opting for financial engineering over product engineering.

Fact is, the wireless device business still has huge potential and growth opportunities. As the cell phone morphs into a true computing device, this is going to take a lot of innovation. Plus, as wireless networks open up in the U.S., power should shift away from the service providers to the device makers.

This is a sad day for American technology companies. Where is your courage and vision Greg Brown?