FOCUS: For Motorola, Investors, Breaking Up Isn't Hard To Do

(This article was originally published Tuesday.) By Roger Cheng Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--In the end, activist investor Carl Icahn got everything he wanted from Motorola Inc. (MOT). On Monday, the Schaumburg, Ill., company said it was selling its telecommunications-equipment arm to Nokia Siemens Networks, another step toward a breakup that Icahn had advocated for more than three years. The company plans to spin off its handset and home businesses into a separate company in the first quarter. It is still unclear whether Icahn's gambit, which involved taking a sizeable stake and agitating for board seats, will pay off. Motorola has lost roughly 60% of its market capitalization since Icahn began his vocal campaign in early 2007, which ultimately led to the company's decision to split. But as the separation nears and Motorola's high-profile mobile-devices business recovers, more investors are turning bullish, with Icahn himself recently adding to his position. "Obviously, I think it's of excellent value," Icahn told Dow Jones Newswires. Motorola shares ended Monday at $7.92, which many argue represent only the value of the company's business mobile computing and public-safety radio arms, known as Enterprise Mobility Solutions, and the roughly $3 billion of cash on hand. If true, that would assign no worth to the mobile-devices divisions and television set-top-box businesses, as well as the telecom-equipment business, which just fetched $1.2 billion. Shares were recently trading at $8.05, up 13 cents, or 1.6%. The disparity in perceived value comes from how the units performed. In the first quarter, the Enterprise Mobility unit was the only part of the company that showed revenue growth with $1.6 billion, and contributed the lion's share of its profits. In comparison, the mobile-devices unit posted sales of $1.7 billion, but remained unprofitable, and the home division had sales of $838 million. The telecom-equipment business saw sales fall 7% to $896 million. Greg Brown, Motorola's co-chief executive, said he believed the split will provide a higher valuation to the Enterprise Mobility unit he will lead after the separation. "This purifies the portfolio," Brown said Monday during a conference call. "We can move unfettered full steam ahead in what we need to do to strengthen our position." As for the other half of the business, even a weak valuation for the mobile-devices and home divisions is better than nothing. However, while Brown's businesses have shown more revenue growth, the mobile-devices business has the bigger potential catalysts. The Droid X, Motorola's follow-up to last year's hit Droid smartphone, launched Thursday and is already sold out in many stores. It is unavailable online until next week. Trip Chowdhry, an analyst at Global Equities Research, estimates that 270,000 to 300,000 Droid X units were sold over the first three days. Beyond the Droid X, Motorola is expected to launch the Droid 2, and Matthew Thornton, an analyst at Avian Securities LLC, said he believes another marquee device is on its way toward the end of the year. Motorola, though, is operating in a field where the sales cycles for the latest smartphone products are shrinking, and competition is brutal. So far, it has benefited from the support of Verizon Wireless, the joint venture of Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD, VOD.LN). Analysts said they believe Motorola's phones have held a hardware lead with features such as high-definition video compatibility and a more powerful camera, but competitors are catching up. "The number of competitors has increased, but the shelf space hasn't," noted UBS analyst Maynard Um. In May, Icahn disclosed that his stake in Motorola rose to 203.3 million shares, or 8.75% of total outstanding shares, in what can be taken as continued support for the company. He isn't alone in his sentiment; several analysts raised their estimates for Motorola's mobile-devices business last week. Following the announced sale of the telco-equipment arm to the joint venture of Nokia Corp. (NOK, NOK1V.HE) and Siemens AG (SI, SIE.XE), ratings agency Moody's Corp. changed its rating outlook on Motorola's debt to positive from negative. Motorola is expected to provide more details of its progress when it reports second-quarter results on July 29. (Roger Cheng covers the telecommunications industry for Dow Jones Newswires. He can be reached at 212-416-2153 or by email at roger.cheng@dowjones.com.) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) (END) Dow Jones Newswires July 21, 2010 07:35 ET (11:35 GMT)