Processors Toolkit

Motorola sets chip unit adrift

John G. Spooner CNET News

Published: 06 Oct 2003 16:15 BST

Motorola's chip unit will go its own way, the company said on Monday.

In an effort to focus on five product categories in the communications and electronics systems markets, Motorola intends to create a separate company out of its Semiconductor Products Sector (SPS), which builds chips such as the PowerPC.

Though Motorola says it has not finalised all the details of the transaction, the company announced that after a four-month strategic review, it believes the semiconductor product segment could prosper most fully as a separate company.

Over the summer, Motorola underwent a strategic review, which weighed options on issues such as making the best use of its semiconductor business, and evaluated its communications products and integrated-electronic-systems businesses.

"We felt as though this was the right time and the right thing to do, based on all the analytics. We think it's the right thing at this stage," said Christopher Galvin, Motorola's chief executive, in a conference call on Monday morning.

The move makes sense now, as the semiconductor industry has shown signs of a rebound after several tough years, the company said.

But Motorola itself has gone through several tough years, and Galvin has announced plans to step down, citing a difference of opinion with fellow executives on the company's direction. Galvin had spoken in the past about taking a back-to-basics approach.

Motorola chips are used widely in networking and automotive markets, and less often in computers. Motorola chips help control the power train in a number of automobiles, for example. But the SPS has gone through its own set of tough times, most recently surrendering to IBM a key role in delivering the PowerPC for Apple Computer's top-of-the-line desktop. Motorola and IBM both hold a PowerPC licence, but each produces its own version of the chip.

Motorola is likely hoping the spinoff will turn things around. The company is considering an initial public offering of a portion of the semiconductor unit, to be followed by a distribution of remaining shares to shareholders in a tax-free manner, the company said. The move would be subject approval by board of directors and by regulators.

As a publicly traded company, the semiconductor group would be able to add new product lines more easily through acquisition, Motorola said.

"We believe SPS is well positioned to increase its leadership in the end markets it serves, including the networking, communications, transportation and industrial markets," Scott Anderson, president of Motorola SPS, said in a statement.

Anderson will lead the separation effort.

Spinning off semiconductors will leave Motorola to focus on building products as well as providing software and services for its major areas of focus, such as networking.

The company will continue with five product divisions. Its Personal Communications Sector will offer cellular handsets and related products, and its Global Telecom Solutions Sector will deliver cellular network gear, software and services.

Motorola's Commercial, Government and Industrial Solutions Sector will focus on delivering radio and other communications products to government and business clients. At the same time, its Integrated Electronic Systems Sector will serve the automotive industry, and its Broadband Communications Sector will offer cable systems and broadband communications products.

Although Galvin plans to step down once a successor is found, he said the efforts to reorganise Motorola are unrelated to his personal plans or any conflict he might have had with other executives.

"There's absolutely no conflict as it relates to the (business) portfolio," he said. "We all agree on the portfolio, and we believe it's an opportunity to move the company forward with a clearer focus."

Ultimately, "my intention is to leave my successor with a formidable platform on which to build," Galvin said.

Motorola, which reports quarterly earnings on 14 October, could not offer exact details on a time line for the SPS's separation. However, it is expected to outline many of those details in an upcoming filing with the US Securities and Exchange Commission.