Effective January 4, 2011, Motorola will split into 2 companies. According to an article written by Peter Svensson, AP, Motorola is splitting its consumer-oriented side, which makes cell phones and cable set-top boxes, from the side that sells police radios and barcode scanners to government and corporate customers. Shareholders of record on December 21, 2010 will receive shares in both the consumer business, Motorola Mobility, and the professional business, Motorola Solutions after the first of the year.
Motorola to Split into 2 Companies
Motorola started out as a car radio manufacturer in the 1930′s. Motorola pioneered the cell phone industry in the 1980′s. Motorola, once the 2nd largest cell phone manufacturer in the world, is now only the 7th largest, selling fewer phones than either Apple Inc. or Research In Motion Ltd., the maker of the BlackBerry. Finally focusing on Smartphones, like the Droid and Droid X, Motorola was able to post an operating profit for the 3rd quarter of 2010. This is the first profitable quarter in the last 3 years. The businesses that will split off and become Motorola Mobility had $2.9 billion in sales in the last quarter, compared with $1.9 billion for Motorola Solutions. However, it is not all that simple. The Solutions side had $321 million in operating earnings while Mobility only showed $3 million.
How will the split affect shareholders? According to Peter Svensson, on January 4, shareholders will receive one share of Motorola Mobility for every eight shares of Motorola Inc. Motorola Inc. shares will then go through a 1-for-7 reverse stock split, as the company renames itself Motorola Solutions. Both stocks will trade on the New York Stock Exchange. I am not a financial wizard, but it seems like one share for every eight shares is a bit shy of what may be due shareholders. However, if you consider the profit ratio for the different divisions, perhaps it works out. Getting one share of an upward flow seems better than 8 shares of a stagnant company.
Motorola has been preparing for the split for a couple of years. They hired Sanjay Jha to head the handset division in 2008, and to act as co-CEO. He will be the head of Motorola Mobility. The other co-CEO, Greg Brown, will head Solutions.
When Motorola splits, will there be more profit? With the Mobility side focusing on Smartphones, and perhaps tablets, we may see Motorola gaining in the market share for cell phones. Certainly Verizon has invested a great deal in the whole Motorola Droid market. I love my Motorola Droid X from Verizon. Motorola and Verizon have also come out with the Droid Pro, which is geared toward the BlackBerry user market. Can Motorola pull out of the doldrums? Let’s hope so, but as with many things, we will have to adopt the wait and see policy.