GigaOM

Motorola has announced the spinout of its handset division, continuing a history of divesting itself from troubled business lines and isolating its potentially attractive networking and equipment business for a future buyer.

Details about the spinout are few and far between, but Greg Brown, Motorola’s CEO, plans to stay with the network and equipment division, which posted profits of $192 million in the set-top-box arena and profits of $451 million in the two-way radio and scanning divisions last quarter. A new CEO is being sought for the handset unit, which lost $388 million last quarter. The key question of who will get the Motorola brand is uncertain, but I think it should probably go to the handset business, if only because it’s the most consumer-facing one. (I will miss my Moto walkie-talkies, though.)

Brown believes the spinout will create “two industry-leading companies,” while the rest of the world recognizes this as an attempt to put a dog of a business unit out, in order to keep shareholders happy. The split comes after activist investor Carl Icahn spent months pressuring the Motorola board to sell off the handset division, which never rebounded after RAZR phones stopped being the next new thing. Motorola rode that wave all the way to the shore and, after trying to sell the division for the last few months, is now spinning it off into a new public company. I’ll pass on those shares, thanks.

A similar fate befell Freescale Semiconductor, formerly Motorola’s semiconductor products sector, back in 2004. As a spinout, the chip company went public in a tax-friendly deal for Motorola. Freescale got certain intellectual property, a new name and Motorola as a customer. But it also had to deal with a bloated management structure and find the attitude needed to fight it out in the tough chip industry as an independent player. Frankly, it was a mediocre business and managed to get bought out by a private equity firm a little more than two years after its IPO. The handset business will face the same challenges.

The networking and equipment business, however, might soon find itself a target for another buyer. The RFID business, which Motorola expanded after a $3.9 billion acquisition of Symbol Technologies, is growing. Additionally, the set-top-box business has proven attractive to information technology companies eager to get into consumers’ living rooms.

There’s also continued M&A activity in the telecommunications gear business, which is still too big to support the smaller number of carriers in the world today. A deal with Nortel, Alcatel-Lucent, Tellabs or Ericsson might one day make sense. If WiMax takes off, the network division might find itself in a good position relative to other equipment vendors who have turned their back on the standard.

Given all this, I wonder who Brown will find to take on the handset business.

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