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Motorola to Break Off Wireless Business

Motorola will split into two independent, publicly traded companies, the company announced Wednesday morning, splitting its troubled mobile-handset division from its profitable cable-equipment and enterprise-telecommunications-device business.

The Schaumburg, Ill.-based concern, the leading supplier of cable set-tops and headend equipment to U.S. cable operators, has been in turmoil since last year, when powerful activist investor Carl Icahn launched a campaign to break up the company after several quarters of poor financial performance. Embattled CEO Ed Zander announced that he was stepping down last November, to be replaced by then-president and chief operating officer Greg Brown.

Since becoming CEO in January, Brown has been making moves to streamline Motorola’s operations and improve the fortunes of the wireless business, including taking direct oversight of the handset division. In January, the company reported that fourth-quarter-2007 earnings declined 84% compared with last year, dragged down by a 38% drop in sales for its Mobile Devices segment, and the company forecast a first-quarter-2008 loss.

The Mobile Devices business, which has $4.8 billion in annual sales, posted an operating loss of $388 million for Q4 2007 compared with operating earnings of $341 million in the year-ago quarter, and its poor performance overshadowed increased sales for Motorola’s enterprise business and its Home and Networks Mobility segment, which makes cable set-tops, modems and related equipment. At the time, Brown declared, “The recovery in Mobile Devices will take longer than expected and there is a lot more work to be done.”

Apparently, Brown and the Motorola board have decided that the best move is to break off the handset business into its own company -- a transaction Motorola expects to be consummated in 2009, subject to subject to certain customary conditions, including a favorable tax ruling from the IRS.

“Our decision to separate our Mobile Devices and Broadband & Mobility Solutions businesses follows a review process undertaken by our management team and board of directors, together with independent advisors,” Brown said in a statement. “Creating two industry-leading companies will provide improved flexibility, more tailored capital structures and increased management focus, as well as more targeted investment opportunities for our shareholders.”

Motorola said the creation of the two stand-alone businesses is expected to take the form of a tax-free distribution to Motorola’s shareholders, subject to further financial, tax and legal analysis, resulting in shareholders holding shares of two independent and publicly traded companies: Mobile Devices, which makes mobile handsets, accessories and associated software; and Broadband & Mobility Solutions, which includes Motorola’s enterprise mobility, government and public safety and home and networks businesses and makes voice- and data-communications solutions and wireless-broadband networks for enterprises and government and public-safety customers worldwide, as well as cable set-tops, broadband modems and associated headend equipment for cable operators and telcos.

“Our priorities have not changed with today’s announcement,” Brown said. “We remain committed to improving the performance of our Mobile Devices business by delivering compelling products that meet the needs of customers and consumers around the world. As part of that effort, we have undertaken a global search for a new CEO for the Mobile Devices business. We believe strongly in our brand, our people and our intellectual property and expect that the Mobile Devices business will be well-positioned to regain market leadership as a focused, independent company.”