Analysts see Motorola returning to 'Apollo 11' roots
Forty years after making the radio that Neil Armstrong used to speak the first words from the moon, Motorola Inc. may be considering a return to its roots, paring back the company to its most profitable unit.
Co-Chief Executive Officer Sanjay Jha said last month that Schaumburg-based Motorola, the biggest U.S. mobile-phone maker, is progressing with plans to spin off its handset unit. Now the company is exploring a sale of its home-entertainment division, which makes cable television set-top boxes, according to three people with knowledge of the plans.
Motorola lost more than $4 billion last year after its company's phones failed to compete with Apple Inc.'s iPhone and Research In Motion Ltd.'s BlackBerry. Getting rid of phones and set-top boxes would leave Motorola as a maker of two-way radios and bar-code scanners, a business that proved more profitable over the past five years than the home-entertainment unit.
"The new Motorola in the long term will be grounded on its enterprise business," said Ken Dulaney, an analyst at Gartner Inc. in San Jose, California. "The good thing is they have a degree of expertise in their enterprise business that's not easy to replicate."
A possible sale of the set-top box unit isn't imminent, said two of the people, who declined to be identified because the discussions are confidential.
"The timing is surprising," said Tero Kuittinen, an analyst at MKM Partners LP in Greenwich, Connecticut, who recommends selling the stock. "Most people would have expected the Motorola handset division to stabilize before the company made any major moves."
Jennifer Erickson, a spokeswoman for Motorola, declined to comment.
Motorola fell 8 cents to $8.69 at 9:45 a.m. in New York Stock Exchange composite trading. Before today, the shares had almost doubled this year.
Profit at the home-entertainment division fell 24 percent to $199 million in the third quarter, while sales dropped 15 percent to $2.01 billion. The unit accounted for about a third of revenue.
Motorola, or the Galvin Manufacturing Corp. as it was then known, introduced its first car radio in 1930 and two-way radio in 1940, according to the company's history. A Motorola transponder aboard the Apollo 11 space capsule in 1969 relayed the astronauts' words back to Earth from the moon.
The company sold the world's first commercial mobile phone, the DynaTac, in 1984 and developed a hit with the Razr handset 20 years later. As the fortunes of the phone business languished in 2008, Motorola announced plans to split into two companies.
Executives delayed the plans seven months later, citing the global financial crisis and slowing U.S. economy. In the mobile-phone market, Jha is counting on handsets based on Google Inc.'s Android operating system. Two phones, the Droid and the Cliq, went on sale this month.
Private-equity firms are among potential bidders for the home and networks mobility business, the people said. A price tag of about $4.5 billion, reported yesterday by the Wall Street Journal, "makes sense," said Matt Thornton, an analyst at Avian Securities LLC in Boston, who rates Motorola "positive" and doesn't own the shares. That price would represent an 18 percent premium over his $3.8 billion valuation, Thornton said.
"The home networks business isn't a growth business," Thornton said. "What it can be is a cash-flow generator. It doesn't require investments."
Private-equity firms including TPG and Silver Lake may be interested in the business, the Journal reported, citing people familiar with the discussions. Owen Blicksilver, a TPG spokesman in Fort Worth, Texas, declined to comment. Calls to Menlo Park, California-based Silver Lake weren't returned.
The company retained JPMorgan Chase & Co. and Goldman Sachs Group Inc. as advisers on a possible sale, the Journal said, citing people familiar with the matter. Andrea Rachman, a spokeswoman for Goldman Sachs, declined to comment, as did Tasha Pelio, a spokeswoman at JPMorgan.