More Motorola uncertainty

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The great Motorola split is looming. After less than three months in the job, Motorola chief executive Greg Brown has said he will divide the company into separately quoted businesses next year.

Motorola shares rose on the news the company was giving in to demands by activist investor Carl Icahn. The move was not unexpected – Brown was considering selling the troubled handset arm two months ago. But a long period of uncertainty now waits for employees of both the handset business and the broadband/mobility solutions division.

Brown indicated he has no quick fix for the money-losing handset division, which has failed to follow up the Razr. It is still losing market share, having seen its share almost halve in the past year.

Many analysts hoped Brown could do a deal on the handset business, and Chinese manufacturers Huawei and ZTE continue to be linked. “It could be 18 months before the split, by which time the overall outlook could be completely different,” said Richard Windsor at stockbroker Nomura.

Industry analysts Ovum’s mobile director Martin Garner (pictured) said the news would be a relief for Motorola investors, but added it wouldn’t solve its problems and left staff wondering about their futures.

“To make it work, Motorola must provide a period of management stability and focused product development. The split isn’t a short-term fix for the weak handset portfolio. Improving that will be a long, hard process,” he said.

Garner warned if networks give Motorola’s current products the cold shoulder, the company may have to cut “significant numbers of staff in 2008 and scale back new product development”.

Rival companies might use this period of uncertainty to poach top Motorola executives. And it strikes me if Motorola’s handset business is demerged as a profitable entity, but in a much-shrunken form, its prospects for future growth in this fast moving, fashion-led market may be hamstrung.

By the same token, Brown has been clever in giving himself a long time frame. No one knows when the credit crunch will end or when sufficient confidence will return to financial markets for him to carry out a successful demerger: there would be little appetite for it at the moment.

Gartner research vice-present Leif-Olof Wallin believes the announcement was in some ways a come-on to potential buyers. He said: “The next step will be to look for buyers outside the handset business; to spin it out or possibly float it. We’ve seen virtually all western device manufacturers, except Nokia, divest their handset business – Alcatel, Phillips, Siemens with Joint ventures/divestitures, and Ericsson with a joint venture with Sony.

“It seems none of the handset vendors have showed sufficient interest in acquiring Motorola’s handset business, indicating the divestiture might take time.

“During this time, the handset unit will be under considerable stress, with lots of inward-looking activities taking time and focus from products, sales and marketing, which might further fuel a negative spiral.”

First profits for 3 UK

3 UK overcame regulatory price cuts to deliver its first underlying profits in 2007.
3’s parent, Hutchison Whampoa, said the business had delivered positive earnings before interest, tax, depreciation and amortisation – although it did not give a figure.

Hutchison, which has poured more than £10 billion into 3 UK, said customer numbers rose nine per cent to 4.45 million, with revenues five per cent up at £1.59 billion. But it made a big loss at the bottom line after writing off the cost of thousands of customers it no longer expects to make a profit from.

Meanwhile, Hutchison confirmed it has hired Goldman Sachs to advise on the potential sale of 3 Italia, for which it has received quite a lot of interest.

Verizon sees off Google

Vodafone’s US joint venture is facing a $10 billion (£5bn) bill for a giant chunk of America’s airwaves after an auction saw the government raise sums not seen since 2000’s 3G auctions.

Verizon Wireless saw off a bid from Google by paying $4.74 billion for the choicest chunk of spectrum on offer. Google had publicly promised to bid at least $4.7 billion for the ‘C block’ spectrum to trigger a clause that makes it open to all kinds of devices. Keen to cash in on the growth of mobile internet advertising opportunities, Google wanted to ensure it wouldn’t be left out if someone else bought the licence.

Vodafone shares rose after it reassured investors Verizon Wireless’s bill had not affected its expectations of when it might start receiving dividends from the business again.

Of course, that was two weeks ago; since then, Vodafone shares have taken a big tumble. The cause was a note by analysts at broker Morgan Stanley, which told investors to start selling the shares and warned of further pressure on pricing from regulators.

 

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