It's long been known that Motorola (NYSE: MOT ) was looking at breaking itself up. After all, the company has functioned under a dual-CEO system since 2008. The problem is, Motorola's cell-phone business has been losing tons of money, so it's a hard sell to other companies. So the unit has remained in Motorola, dragging down results and forcing the company to rely on its more profitable businesses in radios and telecom networking.
In this video, Erin Corr and Fool.com analyst Eric Bleeker look at Motorola's solution to splitting itself up. Motorola is going to take the company's large pile of cash, pay down some debt, and essentially give the remaining cash to a cell phone spin-off.
The cell-phone unit is still bleeding cash, but under a plan focusing on Google's (Nasdaq: GOOG ) Android operating system, it has managed to create a pipeline of products that are once again in hot demand. Just yesterday the company unveiled the newest edition of its Droid smartphone. With Verizon (NYSE: VZ ) set to once again heavily promote the phone as a flagship product that goes head-to-head with the iPhone, Motorola should see strong smartphone sales in coming quarters. By giving the mobile-phone unit the necessary resources to realize its turnaround plan, Motorola is hoping investors will be more likely to buy into the company.
So is either one of the spin-offs a buy? Eric is still leery of the cell-phone division; there are a number of companies shifting away from cheaper phones to smartphones focusing on Google's Android. As companies such as Sony Ericsson, Samsung, and HTC push more models onto store shelves, they'll give future top-of-the-line Motorola products more competition, and all phones will essentially offer the same underlying experience.
As far as the networking group, or the "solutions" group as it's being called, there's more potential for investors. It's a pretty boring business that makes radios, bar-code scanners, and cellular-base station equipment, but up until the downturn it was growing pretty well and is stable. Eric says if the spinoff beings trading with an expected P/E ratio roughly in line with competitors, in the low teens, it wouldn't be a home run, but it'd be a safe play for investors.
To hear our full thoughts on Motorola and its planned spinoff, watch the video below.
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