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Motorola formally splits; companies begin trading

Tue, 01/04/2011 - 7:20am
Dana Wollman, AP Technology Writer

NEW YORK (AP) – After years of preparation, consumer-electronics pioneer Motorola Inc. formally split into two companies on Tuesday – one for its consumer-oriented businesses such as cell phones, and the other for police radios and other products targeted at professionals.

In midday Tuesday, shares of the consumer-focused Motorola Mobility Holdings Inc. climbed $2.44, or 8.1 percent, to $32.68 after rising as high as $33.45 earlier in the session, while its other business, Motorola Solutions Inc., fell 7 cents to $37.41. The shares were trading on the New York Stock Exchange with the ticket symbols MMI and MSI, respectively.

Although Motorola began by making car radios, TVs and cell phones, the company has since expanded into police radios and barcode scanners aimed at government agencies and large businesses. The company has become increasingly diverse, and the breakup that began in 2008 is motivated by the desire to present two simple businesses to investors rather than one complicated one.

In a 1-for-7 stock split, Motorola shareholders of record on Dec. 21 received one share of Mobility and seven shares of Solutions for every eight shares of Motorola Inc. they already held. People who already owned shares in Motorola have already been trading stock in the newly formed companies on a "when issued" basis for almost a month. Those shares became official Tuesday.

While Motorola's professional business soared, its cell phone business fell into a years-long slump as Apple's iPhone and other smartphones took off. The company's cell phone division once enjoyed strong sales thanks to the Razr, a slim, clamshell-style feature phone that debuted in 2004 and became a best-seller. As recently as 2007, cell phones accounted for two-thirds of the company's revenue.

But Motorola couldn't repeat the Razr's success as consumers began flocking toward smartphones such as the iPhone. Motorola's manufacturing process also yielded smaller profits than competitors', and so when cell phones sales began dwindling, its losses loomed that much larger.

The divisions that became Motorola Mobility – namely cell phones and cable set-top boxes – had $2.9 billion in sales in the most recent quarter, compared with $1.9 billion for the Motorola Solutions segments. However, the $321 million in operating earnings at Solutions was much stronger than the $3 million that Mobility made.

In 2008, under pressure from activist investor Carl Icahn, Motorola set the breakup in motion, hiring Sanjay Jha, the chief operating officer of mobile chipmaker Qualcomm, to strengthen its declining cell phone business.

The breakup was originally slated for 2009, but Motorola postponed it because of the economic downturn. In November, the company announced a definitive date for the long-planned split.

Sales of Motorola cell phones have since recovered. In October, Motorola said the division was profitable for the first time in three years, due in large part to its focus on smartphones such as the Droid that run Google's Android software, which competes with the iPhone.

Solutions will continue to be based in Schaumburg, Ill., while Mobility will take up a temporary home in nearby Libertyville, Ill. Motorola officials have said that it may later move its headquarters team to San Diego, the San Francisco area or Austin, Texas.

As part of the breakup, Motorola is also selling off a division that makes network equipment for cell phone companies to Nokia Siemens Networks, a Finnish-German joint venture. Regulators in China are still reviewing the deal, which is expected to close in the next three months.

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