Is Motorola’s split enough to reignite innovation?

Analysts note top handset OEMs Nokia and Samsung, and tier two players, including LG and Kyocera, stand to benefit from Motorola's blunders in the mobile market.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 3/27/2008

Questions surrounding Motorola Inc have begun swirling in the high-tech industry after the company announced Wednesday plans to spin out its struggling mobile devices business. 

The move will see Motorola split in two, keeping its broadband and mobility solutions business, which includes Motorola’s enterprise mobility, government and public safety, and home and networks businesses, and separating its handset division into a second company, most likely in 2009.

Why Motorola is dividing is clear: the decision comes less than three months after Greg Brown took the CEO title and follows three years after the company’s most recent handset success, the Razr. In 2007, the Schaumburg, Ill-based company shipped some 60,000 less handsets than it did in 2006. Doing so placed the company in the number three spot in handset OEM rankings, behind Nokia and Samsung, respectively. The company has also faced intense pressure from Carl Icahn, the second-largest shareholder in Motorola, for the spin out of the mobile devices business.

However, today, as the dust settles, the paramount question being posed by the analyst community is: Will spinning off the handset division help bring innovation back to life at Motorola?

"What is clear is that a radical move needed to happen," said Kevin Burden, research director of mobile devices at Oyster Bay, NY-based ABI Research, in a statement. "Creating a leaner and more focused unit with an improved cost structure can help fix its execution issues while also tending to attract the type of senior talent it has desperately needed. Still, while the move will give Motorola the chance to repair many of the supply chain issues that have hampered its execution, better innovation resulting in handsets that subscribers actually want to buy is ultimately what will improve Motorola's business -- and there is no guarantee that will be the result of this proposed split."

Burden said that it is no secret that Motorola's “lack of innovation and execution has been its downfall,” but warned that he does not expect the situation to get much better while Motorola processes the split.

"This is going to be a tremendous distraction at a time when the firm really needs laser focus,” he said. “While it's a bold move that has the promise of paying off in the long run, the almost certain winners in the short run will be Nokia and Samsung, which have been the primary beneficiaries of Motorola's gaffes, but now many of the tier two players including LG and Kyocera also stand to benefit."

Researchers at Boston-based Strategy Analytics agree and believe that this split will not necessarily save Motorola from a business standpoint or address its technical deficiencies.

"A spin-off of the mobile division will enable Motorola to focus on its core competence in cellular handsets. However, we emphasize that this short-term financial fix must not distract Motorola from its long-term operational problems,” Bonny Joy, wireless analyst at Strategy Analytics, said in a statement. “Motorola mobile still badly needs to address its core problems of an ineffective supply chain, a weak 3G component strategy and an unattractive 3G handset portfolio."

Indeed, EDN readers have also questioned Motorola’s technology practices. In a blog posted Wednesday afternoon, several self-identified ex-employees of the company express issue with its management and technology direction.

Strategy Analytics further suggested the move will allow Motorola to promote its consumer connectivity work.

"We have long argued that Motorola remains less than the sum of its parts, as far as its consumer strategy is concerned,” Peter King, director of the connected home service at Strategy Analytics, said in the market-research company’s statement. “With leading positions in mobile and connected-home, Motorola should be driving the market forward with original consumer technology concepts. But we see little sign that it is maximizing that potential. Separation should help the company direct its efforts more effectively toward broadband and digital opportunities. This announcement is a step in the right direction."