Motorola to spin off semiconductor unit
By Don Babwin
Associated Press
CHICAGO — Motorola Inc. plans to spin off its semiconductor operations, its biggest money loser, as a separate, publicly traded company — a change of course that analysts said was long overdue.
"We believe that by creating two independent companies we will be able to better unlock the value of Motorola's existing businesses," Christopher Galvin, the outgoing chairman and chief executive of the Schaumburg-based company, announced yesterday.
The telecommunications equipment maker is considering an initial public offering of a portion of its semiconductor business followed by a distribution of remaining shares to shareholders, subject to Motorola board approval and other conditions, Galvin said.
Motorola shares surged on the news, climbing by $1.22 to a 52-week high of $13.50 a share at close of trading on the New York Stock Exchange.
Analysts have long been calling for the unit — which fell off the list of top 10 world chipmakers this year — to be sold or spun off. Motorola's worldwide semiconductor sales were $4.8 billion in 2002, about 18 percent of the company's $26.7 billion total sales.
Morningstar analyst Todd Bernier noted that Motorola's semiconductor division accounted for $1.5 billion of Motorola's $1.8 billion operating loss in 2002.
"It's a stronger company without the (semiconductor) division," Bernier said.
The move follows Galvin's recent announcement that he was retiring — which also was met by a surge in stock price. And even though Galvin said he supported the move, analysts said it is contrary to his philosophy that the semiconductor division be under the same roof as the parent company, which his grandfather founded.
"It's not a coincidence that, in my opinion, he resigned and then a week later they announced they are spinning off the chip business," Bernier said.
Motorola executives said the move makes sense because the semiconductor business is much more cyclical — something analysts have long argued.
David Devonshire, the company's chief financial officer, said the separation also will improve relationships with customers "who may perceive a conflict with Motorola's other businesses."
Analysts agreed. Matt Hoffman of SoundView Technology Corp. said that because Motorola provides semiconductors to its own cell phones, "There's always a perception that the external guys will have to stand at the end of the line, that (Motorola) had a home field advantage."
The 23,000-employee semiconductor division is based in Austin, Texas, and Motorola said there are no plans to move the new company.
Executives would not say when they hope to complete the spinoff nor how much they would expect to raise in an IPO. Nor did they discuss how the decision would affect a search for Galvin's replacement.
But Hoffman suggested yesterday's announcement could point to Mike Zafirovski, Motorola's president and chief operating officer who formerly headed the cell phone division.
"We know he's been an agent for change inside Motorola over the past few years," he said.
