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Motorola's Handset Hangup

In a sign of desperation, the company considers cutting off a flagging unit that accounts for half of its revenue.
Motorola

Its sales and stock price in freefall, its management in flux, Motorola said Thursday that it is considering breaking itself up, shedding an anemic cell-phone handset division that accounts for more than half its revenue.

Heaving the dead weight of the cell-phone business overboard would leave Motorola with its healthier, faster growing units that make settop cable-TV decoder boxes, high-speed computer modems, and handheld radios.

The announcement came two months after the C.E.O. at the time, Ed Zander, was pushed out in favor of Greg Brown, who was then the chief operating officer. He announced the decision to look at whether to split off the cell-phone unit.

"We are exploring ways in which our mobile devices business can accelerate its recovery and retain and attract talent while enabling our shareholders to realize the value of this great franchise," he said in a prepared statement.

In the company's most recent quarterly-earnings statement, Motorola said its handset division accounted for $14.2 billion in revenue through the first three quarters of 2007. Total company revenue was about $27 billion.

Handsets, however, lost $813 million in that period, while modems and settop boxes earned $517 million and radios brought in $762 million.

Just one year earlier, the handset unit had made an operating profit of $2.4 billion in the first nine months. That was when Motorola's ultraslim Razr phone was the must-have accessory. It sold more than 100 million of the devices.

But Motorola was caught flat-footed when consumers moved on to higher-bandwidth smartphones like BlackBerry and Treo devices.

In large part, that was because Motorola didn't have an answer when investors asked the company how it would build on the success of the Razr.

"The Razr was like hitting a grand slam, and you can't hit a grand slam every time," he told the tech writer Kevin Maney in an interview published in the December issue of Condé Nast Portfolio. "You win baseball games with lots of singles and doubles, good fielding, good pitching. In the global-device business, if you want to be successful, you have to be maniacally boring."

Maney, puzzled, asked him what he meant by that.

"It's about having lots of products come out on time," Zander answered. "It's the supply chain. It's the cost structure."

In an interview last November with Bloomberg News, Zander appeared to blame the lack of a Razr successor on the people running his handset division. They "had a strategy that proved not to be correct," he said.

But he added: "That's been corrected. We'll be back."

A month later, long before Motorola had a chance to come back, Zander was gone.

And soon, the handset business may be gone too.

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