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Saturday, January 8, 2011

Motorola's Split: Is each better than the other?

Motorola (formerly MOT) split into two separate entities in a long-planned divestiture that was put off by the calamitous financial markets in 2008 and early 2009. The two new companies, Motorola Mobility (MMI) and Motorola Solutions (MSI) followed a fairly logical delineation where the cell phone and set-top boxes pieces will be with MMI and the enterprise and business equipment side including RFID scanners, emergency dispatch systems, and mobile radios will be with MSI.

Interestingly, before Motorola became the champion of all things Android in the past 18 months or so, I would have said the MSI piece looked a whole lot better. Motorola's cell phone business was absolutely hemorrhaging market share to its various rivals to the point it was scraping along at about 5% as of the end of 2009 in the conventional cell phone business:

Credit goes to MobileMentalism.com
 In 2009, sales in the mobile division were down a whopping 41% from a year earlier compared to 21% in their home network and set-top boxes segment and 13% in their enterprise segment. None of that was particularly much to celebrate, but business had clearly begun to stabilize in 2010 with third quarter results showing 20% sales growth in the mobile segment, 5% in the home segment and 9% in the enterprise segment.

Clearly, Android has good prospects going forward and Motorola's offerings in particular have a great deal to offer. I happen to have the original Droid myself so I am a little biased, but I'm a fairly big fan. Of course, Motorola's fortune's are not tied entirely to Android since other manufacturers, including HTC, can just take market share from Motorola and the others in the context of a growing Android pie. There's a good article in the Economist that expresses some skepticism on this point.

However, the profitability of the enterprise segment, which is now MSI, is on more solid footing at this point. The mobile division has been bleeding money, though at a slowing rate, for some time. With improved sales, that should reverse, but the current state of things is that the MSI segment is the more profitable one at the moment.

As a shareholder in Motorola, I now hold annoying amounts of both and have to decide what to do with the respective positions. When I originally bought Motorola, it was based on the idea that Android would help revive the fortunes of their cell phone division. This ended up not paying off as soon as I had hoped, but the indications are that they are really starting to hit their stride now. On this basis, I'll place the majority of my bets with MMI, though I have to round out the MSI position because it is a very irritating 12 shares right now.  I like what I see in both segments, but I'll continue to bet on the Motorola mobile turnaround. In some ways, though, each is better than the other. In case you are wondering where I got that from, watch this trailer for a Fist Full of Dollars and For a Few Dollars More double feature:

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