Motorola Outlines Plan to Split Into Two Companies Tweet

Motorola confirmed on Thursday that it planned to reorganize into two independent companies by the first quarter of 2011, with its mobile handset unit and its television set-top box division being combined and spun off as a separate publicly traded company.

Sanjay Jha will oversee mobile handsets and set-top boxes.

The announced split is meant to finally divide Motorola into smaller, more focused operations, pulling apart the collection of often disparate businesses assembled over the years by the company, which is based in Schaumburg, Ill.

Sanjay Jha, one of Motorola’s two co-chief executives, will oversee mobile handsets and set-top boxes, effective immediately. The remaining operations — Motorola’s wireless networking business and its enterprise radio systems operations — will be headed by the company’s other co-chief executive, Greg Brown.

As envisioned by company executives, the split would create two independent companies, each of which accounted for roughly half of Motorola’s $22 billion in sales in 2009. The companies will be split through a tax-free stock distribution to shareholders. The mobile handset and set-top box business will own the Motorola brand and will license it royalty-free to the enterprise and networking company.

In an interview, Mr. Brown said the enterprise and networks business would assume Motorola’s debt, projected to be a little more than $3 billion at the time of the split. He said he expected the company would retain an investment-grade credit rating.

“Through 2009, we have improved our balance sheet so that both entities will have solid capitalization to have operational and strategic flexibility,” Mr. Jha said in an interview, adding that both companies would also have the ability to obtain additional financing from the capital markets if needed.

While Motorola had previously considered divesting itself of the handset division, which has struggled to find a hit to match its Razr cellphone, the unit’s performance has improved rapidly in the last year, Mr. Jha said. He conceded that in recent years, the business had been a net consumer, rather than a generator, of the company’s cash.

Now Motorola is betting the future of the handset business on producing smartphones built largely on Google’s Android platform. That effort has already borne fruit, according to Mr. Jha. He said the company became one of the largest shippers of smartphones last quarter, thanks to offerings like the Droid phone for Verizon Wireless. He said the company expected to ship 20 smartphone models this year.

Combining the handset unit with the set-top box operations, which deliver digital video services, fits into a “seamless mobility” lifestyle envisioned by carriers like AT&T and Verizon. The idea is that customers would watch content interchangeably on their televisions, computers and mobile phones.

People briefed on the matter have said that Motorola also planned to sell its wireless networking division after the spinoff. Last year, Motorola had begun seeking a buyer for its set-top box and wireless networking units.

A sale of the wireless networking unit could fetch more than $1 billion, according to the people briefed on the matter.

Mr. Brown declined to comment on efforts to sell the wireless networking unit beyond saying that it remained profitable despite declines in revenue.

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