The communications company intends to sell off a portion of its Semiconductor Products Sector (SPS) in an IPO and then distribute the remainder to shareholders. Operating loses at SPS, which accounted for over 17% of Motorola's sales in 2002, have been a continual drag on Motorola's earnings.
In cutting SPS loose, Motorola says it will better focus on its communications and integrated electronic systems businesses. This most likely means a dedicated drive in its cellular handset business, which has fallen behind leader Nokia
Interestingly, while a separation would allow Motorola to explore other handset-chip options, the company says that it will continue to purchase chips for its handsets from SPS.
On the flip side, as an independent entity, SPS may benefit from the perception that it has reduced conflicts of interest with its customers. Scott Anderson, president of SPS, will continue to head the unit in search of profitability.
The move comes only a few weeks after CEO Chris Galvin announced his resignation. Galvin, whose grandfather founded the company three-quarters of a century ago, had been adamant in keeping the company intact at a time when investors felt the need for change.
Apparently the market believes that Motorola is headed in the right direction: Investors bid up Motorola to 52-week highs following Galvin's resignation and have given MOT another shot following news of the spin off.
More from The Motley Fool
Better Buy: Philip Morris International (PM) vs. Coca-Cola (KO)
Which consumer staples stock is the better long-term investment?
What Happened in the Stock Market Today
On a record day for Wall Street, two large food companies gobbled up snack specialists Amplify Snack Brands and Snyder's-Lance.
Does Medicare Cover Assisted Living?
If you're counting on Medicare to pay for an assisted living facility, you're out of luck. But that doesn't mean you won't manage to afford one.