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What Will Motorola Be When It Grows Up?


Making sense of the Board of Directors' erratic behavior.

About two years ago, Motorola (MOT) announced that it had commenced a process to split the company into two entities: Mobile Devices and Broadband & Mobility. The intent was to spin-off the Mobile Devices operation into a standalone entity given its "troubled" operations after one year on the rocks. That objective seems to have muddled forward until it landed Dr. Sanjay Jha to head Mobile Devices. Within a short period of time, the divorce proceedings were put on the back burner as the company fought through the recession.

Fast-forward now to late 2009 and the company attempted to sell off its Home & Networks Mobility (i.e. set-top boxes and cable modems) operations. But according to today's Wall Street Journal, that process has been pulled from the table for reasons which are as yet unknown.

All of this begs the question, "What are these people doing?" Is there something in the water in Schaumburg, Illinois, that leads to such consistently erratic behavior? What's wrong with a Board of Directors that sanctions these actions? Between management and the board they seem to have an attention span generally associated with those attending grammar school.

From early 2002 to late 2006, Motorola's Mobile Devices operations generated more than $7.0 billion in operating income (see below). Yet a little after a year on the rocks, it was ready to jettison the operation.

Certainly the last three years have been tough for Mobile Devices collectively losing more than $4.0 billion through September 30. But the reality is the market and the opportunity hasn't disappeared for those who execute successfully. Why was it so willing to bail when things got tough?

Motorola's Home & Networks Mobility operations aren't exactly what you'd call a high-growth business as you can see in the chart below. If there's one thing this operation probably does is throw off a lot of cash, hence the interest from the private equity firms. When the fourth quarter of 2009 is reported, it will be down for the year, but whose business isn't? Operating margins are modest but at least they're in the black. Competition's probably tough with Cisco's (CSCO) Atlanta-Scientific operations, but that's life. Compete!

We're on the cusp of another change in home entertainment -- direct access to the Internet-based media on your TV -- and this company was ready to exit the market.

Management changes at Motorola have been frequent so it's difficult to lay the blame for erratic behavior on the current team in place. However, what has been quite "consistent" is the Board of Directors. Maybe it's time for shareholders to start replacing them.
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