HelloMoto may morph into Goodbye Moto if Motorola’s investors have their way. Nonetheless, the beleaguered business’ legacy could help its purchaser become a pioneer in next iteration of the mobile devices industry.

From its original “brick” handsets to the iconic StarTac, which drove consumers’ love affair with the clamshell form factor, to the wildly popular RAZR, Motorola has been a trendsetter in mobile handsets. But investors and potential buyers are interested in the future, not the past, which raises questions regarding the marketability of Motorola’s anemic handset unit.

Motorola’s investors are pushing for the firm to divest its floundering Mobile Devices business, which saw 4Q07 sales slide 38 per cent, leading to a quarterly operating loss of $388 m, compared with operating earnings of $341m one year earlier. The handset unit has now posted losses for the past four quarters.

Corporate raider Carl Icahn now holds a 6.3 per cent stake in Motorola and is pushing to get his people on the company’s board in order to force it to dump the cell phone biz, which analysts have said could fetch up to $20bn.

If a buyer for the devices business cannot be found, Motorola might opt to spin off the division into a legal entity with its own publically traded shares.

But there may be buyers, or possibly joint-venture partners, waiting in the wings. According to reports, Asian handset makers are potentially interested in buddying up to Motorola’s handset division, if not buying it outright. One recurring name has been China’s ZTE, which I found curious to begin with because ZTE is known as a price leader, not a style leader, particularly in emerging markets where it marches in with guerilla pricing designed to attract new mobile customers.

But just as the rumors started to take off, ZTE’s management sought to quash them by saying that the company hopes to expand via internal growth rather than through acquisitions.

Nonetheless, I’m now starting to warm up to the idea of a ZTE-Motorola hookup. Like ZTE, Motorola has been a price-leader of sorts, via its participation in the GSM Association’s Emerging Markets Handset initiative. Further, ZTE wants to make a dent in North America, where it sells a single handset model to US operator MetroPCS Communications, and Motorola is still strong in the US market, much to the chagrin of Nokia, which just can’t seem to make sense of Yankee product preferences. Huawei Technologies might also seek to elevate its status via a buyout of Motorola’s cell phone biz. For that matter, I would suggest that Nokia could benefit greatly from the innovations and sense of style that Motorola handsets have exhibited over the years.

Thinking outside the box, however, Motorola’s handset unit could be a strategic investment for an Internet player such as Google or maybe even Amazon, whose unique Kindle wireless book reader has shown that the Internet retailer is willing to take some daring steps technology-wise.

Motorola still holds third place in terms of global mobile handset market share, and it shipped 40.9 m handsets during 4Q07. Mobile phones and related devices will be key to future Internet access models, particularly in emerging markets that don’t have a lot of computers. Mobile will help drive future consumption of digital content in various forms, including entertainment, location-based services and, of course, advertising. Any technology company looking for a quick opening into the wireless future might consider whether Motorola’s handset unit could help it make that entry.

Navigation companies that hope to enter the cell phone business are also possible acquirers. On Jan. 30, Olathe, KS-based Garmin announced the nuvifone, a combo cellular handset and personal GPS navigator that is slated for sale in 3Q08. Netherlands-based TomTom also is said to be developing a GPS-enabled handset. Another GPS device maker, Taiwan’s Mio Technology, announced on Jan. 30 that it is working with Qualcomm to develop a line of connected PNDs that will leverage Qualcomm’s QST1100 chipset. Meanwhile, Motorola recently announced its DH01n device, which combines a personal media player with navigation capabilities.

Motorola’s devices unit might also be acquisition bait for a private-equity company, but with the credit markets drying up, investors are less likely to want to take on such a major and potentially risky purchase.

Buyout firms Blackstone Group, Carlyle Group, TPG Capital and Permira are already struggling with their decision to pay $17.6 billion in December 2006 for Freescale Semiconductor, which was formerly owned by Motorola. Freescale is now heading toward a financial morass, in part because a quarter of its business comes from the flailing Motorola, and the chipmaker is high on many financial pundits’ lists as a prime candidate for bankruptcy.

This entry was posted on Tuesday, March 25th, 2008 at 11:55 am by Expert View, Tammy Parker. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.