Motorola has confirmed what we told you yesterday that the biggest mobile- phone maker in the U.S., will consider a breakup that would split off its money-losing handset unit, bowing to pressure from billionaire investor Carl Icahn.
As first tipped yesterday by SmartHouse Motorola the biggest mobile- phone maker in the U.S., will consider a breakup that would split off its money-losing handset unit, bowing to pressure from billionaire investor Carl Icahn.
The stock rose 10 percent in late trading after Motorola confirmed what we tipped yesterday that their phone division is up for sale and that the Company is examing options including a possible sale. Icahn said today that the decision won’t deter him from nominating new directors at the next annual meeting.
Chief Executive Officer Greg Brown, who took over this month, faces mounting pressure from investors to slow market share losses to rivals such as Samsung Electronics Co. and Apple Inc. The mobile-phone unit, which accounts for about half Motorola’s sales, lost $388 million last quarter.
“It’s a smart thing for Motorola to do,” American Technology Research’s Mark McKechnie said in an interview. “The Motorola handset business is hurting and they’re acknowledging it.” The San Francisco-based analyst has a “neutral” rating on the shares.
Phone shipments plunged 38 percent last quarter after Motorola lost customers to Apple’s iPhone and camera phones from Samsung, bringing Motorola closer to losing its spot as the third-largest handset maker in the world.
Icahn, 71, had urged Motorola’s executives to split the unit from the rest of the company. He boosted his stake to about 3.3 percent in September.
Motorola rose $1.20 to $12.70 in extended trading after closing at $11.50 on the New York Stock Exchange. The stock has fallen 42 percent in the past year.
Motorola’s other businesses include a unit that builds wireless networks for companies and a division that makes television set-top boxes and modems for home use. The networking division’s sales grew the fastest last quarter, with its 35 percent growth rate overshadowing the 11 percent increase for the set-top box unit.
Motorola has shed businesses in tough times before, including its Freescale Semiconductor chipmaking unit. In July 2004, the company sold shares in the unit, reducing the price of the offering by a third after computer stocks tumbled. Buyout firms led by Blackstone Group LP later bought the Austin, Texas- based business, taking it private.
“For Motorola, divesting is nothing new,” said Mark Sue, a New York-based analyst at RBC Capital Markets who rates the shares “neutral” and doesn’t own any. “I’m not really sure that it would unlock any value considering the challenges the mobile devices division is still undergoing.”
Standard & Poor’s last week cut its rating on Motorola’s credit two levels, to BBB, and said there are “limited signs of recovery” because new phones such as the Razr 2 haven’t met expectations.
Motorola shipped about 1.5 million Razr 2s in the fourth quarter, Brown said in an interview this month. Analyst Michael Walkley at Piper Jaffray & Co. in Minneapolis had projected about 2.5 million.
Samsung overtook Motorola as the world’s second-biggest handset maker last year, and Sony Ericsson Mobile Communications Ltd. is threatening Motorola’s third-place spot.
Motorola’s share of global mobile-phone sales fell to 13.1 percent in the third quarter from 20.7 percent a year earlier, according to Stamford, Connecticut-based researcher Gartner Inc. Motorola said this month its fourth-quarter market share slid to 12.4 percent.
All three of its biggest rivals gained market share in the third quarter, with Nokia increasing to 38.1 percent, Samsung rising to 14.5 percent and Sony Ericsson gaining to 8.8 percent.