It’s official: Motorola now is split in two

By Dana Wollman
Associated Press / January 4, 2011

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NEW YORK — Motorola Inc.’s formal split into two companies today will mark the final step in the yearslong breakup of a consumer electronics pioneer.

Motorola began selling car radios in the 1930s and expanded into TVs in the ’40s and cellphones in the ’80s. The company has become increasingly diverse, and the breakup, which began in 2008, is motivated by the desire to present two simple businesses to investors rather than one complicated one.

Motorola is splitting its consumer-oriented side, which makes cellphones and cable set-top boxes, from the professional business of selling police radios and barcode scanners to government agencies and large companies. The new companies will be called Motorola Mobility and Motorola Solutions.

They begin trading on the New York Stock Exchange today.

Motorola shareholders of record on Dec. 21 will receive one share of Mobility for every eight shares of Motorola Inc. they already held. Motorola Inc. shares will then go through a 1-for-7 reverse split and become Motorola Solutions shares.

Existing investors have been trading stock in the newly formed companies on a “when issued’’ basis for almost a month. The “when issued’’ trades will not be settled until the split becomes official.

Motorola’s professional business has become the crown jewel of its portfolio, while its cellphone business is just emerging from a long slump. The divisions that will become Motorola Mobility 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.

The company’s cellphone division once enjoyed strong sales thanks to the Razr, a slim, clamshell-style feature phone that debuted in 2004 and became a bestseller. As recently as 2007, cellphones accounted for two-thirds of the company’s revenue.

But Motorola could not repeat the Razr’s success. Motorola’s manufacturing process also yielded smaller profits than competitors’ so when cellphone sales began dwindling, its losses loomed that much larger.

In 2008, under pressure from activist investor Carl Icahn, Motorola set the breakup in motion and hired Sanjay Jha, chief operating officer of the mobile chip maker Qualcomm Inc., to strengthen its declining cellphone business. The breakup was originally slated for 2009, but Motorola postponed it due to the economic downturn.

The company’s cellphone business has since rebounded. 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 Inc.’s Android software.