Telecom & Wireless

Motorola (MOT): The Bad Penny Keeps Turning Up

LG Electronics, the world’s No.5 handset maker, recently said it could win more share from Motorola (NYSE: MOT)."Yes, we’ll increase our market share sharply," LG’s chief executive Nam Yong said, when asked by Reuters whether Motorola’s poor performance is seen as a chance for the South Korean company.

No problem. Motorola is selling its handset unit. Someone else can deal with the competitive landscape.

That sounded like a good solution, but no one has stepped up to buy the operation from Motorola. The normal suspects like Sony Ericcson and Samsung are not returning investment banker calls. Private equity firms don’t have access to the capital.

Motorola will almost certainly be left holding the bag on its largest unit which is now losing hundreds of million of dollars a year. It is a business which the company tacitly admitted it could not fix when it put it on the block.

That leaves the new management at one of the oldest handset makers in a real fix.

Last year, Motorola lost $1.3 billion on revenue of $19 billion in its handset business. The company would have to lay-off thousand of employees to close even part of that gap. With a lot of lay-offs already completed that does not leave a lot of options.

Save one. Motorola could spin its handset operation out to the public. The current enterprise telecom and set-top businesses would be Motorola A. Those businesses make money so that might be worth more than the company’s current market cap of $26 billion. That value is dragged down by the loses at the handset business.

Motorola B would hold that handset business. It would probably trade at a fraction of revenue the way that GM (GM), Ford (F), and many newspaper companies do. The market would probably acknowledge that weakness by giving the second public company a market cap closer to $3 billion or $4 billion.

The move would help Motorola’s shareholders immensely. They would have one stock with real value. The price of those shares might actually rise. They would have another stock with a low price and great risk. But, if the handset business can be fixed those shares might double or triple.

Someone needs to get the investment bankers on the phone.

Douglas A. McIntyre

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