Motorola: Bye-Bye, Auto Electronics

The goal is to concentrate on handsets like the Q phone, which the outfit hopes is its BlackBerry killer

Motorola CEO Edward Zander loves gadgets -- the kind of products that he can see and touch (see BW Online, 02/27/06, "Why Zander Jumped to Motorola"). That's clear if you've ever seen him handle one of the company's prototype cell phones. So it makes sense that Motorola is selling a unit that's not focused on handsets -- its automotive electronics business -- to Continental, a German tire company and leading global automotive supplier.

The $1 billion cash deal, announced Apr. 3, allows Motorola (MOT) to turn its attention more directly to the communications tools that Zander loves -- phones and digital video recorders. The auto business includes sensors and electronics hidden deep inside the metal of vehicles, not nifty gear that can be slipped into your pocket. Explains Greg Brown, president of Motorola's Networks & Enterprise business, which oversees the automotive electronics unit: "We want to place our strategic focus around our remaining portfolio."

That means, largely, Motorola's thriving handset unit, which accounts for more than half of the company's $35 billion in sales. The handset is key to Motorola's "seamless mobility" strategy, an initiative designed to allow consumers to take their media content with them wherever they go -- from the home to the office, and yes, even to the car. For example, Motorola is devoting resources to making accessories such as iRadio, software that allows a mobile phone to customize radio stations and let you listen to your favorite tunes in your car via an adapter and Bluetooth technology.


  The Continental deal is really Part Two of a process Zander started about a month ago. That's when he announced the reorganization of Motorola's networks, government, and enterprise businesses into one organization, and named the ascendant Brown as president. That move collapsed disparate businesses and valuable resources into one $14 billion division.

Now that Brown doesn't have the auto business acting as anchor, he's got his sights set on growth. He sees huge opportunities in burgeoning areas such as wireless broadband, such as WiMax, as well as tools such as Motorola's much-anticipated Q phone, designed to empower business users. Those areas "represent enormous growth," Brown says. Some analysts characterize the Q as Motorola's answer to Research In Motion's (RIMM) BlackBerry (see BW Online, 03/30/06, "Nokia's (Slighty) Better Cell Phones".

Don't be surprised to see Brown and Zander jump-start that growth with a major acquisition. Brown would not comment on merger specifics, but several analysts expect Motorola to be among the consolidators in the network equipment business. In the wake of Alcatel's merger with Lucent Technologies (LU), Motorola could decide to improve its position with major telecom carriers by buying a major provider of IP gear such as Juniper Networks (JNPR), Redback, or Tellabs.

"Zander has yet to make a signature acquisition in his tenure," points out Ed Lewis, general partner of tech consultancy RelevantC Business Group. "Recent moves in the network and enterprise unit lead me to believe that unit will be the area of growth and investment."


  The effort to jettison the auto unit had been under way for some time. "Motorola didn't have additional strategic technology to sell to auto makers," says Lewis. "That left them selling components without any other solutions to drive additional value and create price protection."

Indeed, remaining a supplier of components to a struggling industry was a drag on Motorola's otherwise robust growth. Despite several consecutive quarters of revenue and earnings improvements, Motorola execs have fretted over the fact that the company's sluggish shares. The stock, which closed at $23.20 on Apr. 3, is trading near its 52-week high of $24.99. The streamlining frees Zander to focus on the parts of the business that interest him most. With any luck, investors' interest -- and the stock price -- will gather further steam.

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