March 27 (Bloomberg) -- Motorola Inc., the biggest U.S. mobile-phone maker, may find its money-losing handset unit is worth as little as $3.8 billion, a tenth of its value in 2006, now that Garmin Ltd. and Hewlett-Packard Co. are entering the market.

Motorola, based in Schaumburg, Illinois, plans to separate the wireless unit from its networking equipment, cable-TV set- top box and two-way radio businesses, succumbing to pressure from investor Carl Icahn, who began calling for the division's disposal last year. Both companies will be public.

Garmin, the second-largest maker of car-navigation devices, plans to sell ``hundreds of thousands'' of touch-screen GPS phones this holiday season. Hewlett-Packard, the top personal- computer manufacturer, will offer handsets with word-processing. The competition may prevent Motorola from halting a 49 percent slide in the stock since Sept. 30.

``The company is increasingly losing its relevance in the handset market,'' said Ashok Kumar, a technology analyst with CRT Capital in San Francisco. He doesn't have a rating on the shares.

The feature-packed products may further fragment a $147 billion mobile-phone market already cracked by Apple Inc.'s iPhone and Research In Motion Ltd.'s BlackBerry.

Garmin, based in George Town, Grand Cayman, and Hewlett- Packard, of Palo Alto, California, are targeting buyers willing to pay as much as $600, leaving Motorola behind with cheaper, less-profitable handsets. That could spoil Chief Executive Officer Greg Brown's plan to fix a unit that lost $1.2 billion last year as competitors grabbed sales.

Buying Time

The decision to split Motorola, announced yesterday, buys time for Brown to recruit a CEO for the handset unit, whose sales plunged by one-third last year to $19 billion, and return it to a profit. The business is worth $1.69 a share based on 2009 estimates, Merrill Lynch analyst Tal Liani said in a research note yesterday.

Liani's figure equates to about $3.8 billion. Estimates from other analysts range to $5 a share or $11.3 billion, and higher for the unit. Nokia Oyj, the world's largest handset maker, gets 60 percent of revenue from mobile phones and trades at 1.5 times sales, or the equivalent of $125.3 billion.

Motorola's handset unit was worth about $40 billion in 2006, or 1.4 times sales, according to Citigroup analyst Jim Suva in San Francisco.

``If in a year from now they execute, all things being equal, the stock is worth more than it is today,'' Mark McKechnie, an analyst with American Technology Research in San Francisco. He is neutral on the shares and doesn't own them.

Motorola fell 52 cents, or 5.2 percent, to $9.50 at 4:15 p.m. in New York Stock Exchange composite trading, its biggest loss since Feb. 5. The stock is down 41 percent this year.

Icahn Letter

Motorola's Razr, introduced in 2004, has lost out to competitors with more features including the $500 iPhone, $600 BlackBerry and Samsung Electronics Co.'s $200 BlackJack.

In a letter to Motorola's board yesterday, Icahn questioned why it will take until 2009 to complete the breakup. ``I continue to have concerns about the speed and manner in which a new management team is selected'' and the businesses are split, the 72-year-old billionaire said. ``Time is of the essence and decisive action is required.''

Garmin and Hewlett-Packard will showcase their latest mobile devices at the annual CTIA Wireless event in Las Vegas next week. They want to win a larger share of the market for so- called smartphones that incorporate Web browsing, video and other advanced features.

Browser and Camera

Hewlett-Packard this year will start selling the iPAQ 900 Series, which has a full keyboard, runs Microsoft Corp.'s Windows operating system and lets users access corporate e-mail and documents. It also has a browser and 3-megapixel camera.

Garmin, the largest U.S. maker of car-navigation devices, in the third quarter will offer the Nuvifone, which has a touch screen, GPS tracking and a camera.

``There's no reason to think that Garmin won't be meaningful, particularly here in North America,'' said Jeff Rath, an analyst at Canaccord Adams in Vancouver, British Columbia, who advises clients to buy the shares. ``There is evidence that people will want a converged device.''

Motorola hasn't come up with anything comparable, said Wing-Yen Choi at Theodoor Gilissen Bankiers in Amsterdam.

``Newcomers drive innovation and already have a certain target group of loyal customers,'' said Choi, who follows mobile-phone and navigation-device manufacturers. ``Motorola seems to be the next victim.''

Overtaking Motorola

Sony Ericsson Mobile Communications Ltd., with camera and music phones that use the Cybershot and Walkman brands, may overtake Motorola this year as the third-largest handset maker behind Nokia and Samsung, according to Cowen & Co. analysts.

Research In Motion's BlackBerry, which combines e-mail and phone service, and the iPhone, a Web-surfing handset married to Apple's iPod music player, entered the top 10 most popular mobile brands for the first time in the fourth quarter, according to Stamford, Connecticut-based researcher Gartner Inc.

Global smartphone shipments will rise 64 percent this year, about six times faster than the 11 percent gain for the overall handset market, according to London-based researcher Ovum.

Motorola's new handset CEO will have to decide whether to challenge the broad lineups of Nokia, Samsung and LG Electronics Inc. or focus on niches dominated by Apple and Research In Motion, McKechnie said.

Nokia, based in Espoo, Finland, and South Korea's LG and Samsung may try to boost their U.S. market share while Motorola is distracted with efforts to decide on a handset strategy, prepare for the spinoff, recruit a CEO, hold onto talent and combat its weak product portfolio, Merrill's Liani wrote yesterday.

``We also do not see any natural buyer for the handset business before management is able to turn it around,'' Liani wrote.

To contact the reporters on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net; Marcel van de Hoef in Amsterdam at mvandehoef@bloomberg.net; Amy Thomson in New York at Athomson6@bloomberg.net

Last Updated: March 27, 2008 16:33 EDT