Motorola's handset division conundrum

Motorola is running into trouble when it comes to trying to separate the company's mobile-phone division, a plan it announced in February. The big issue is the huge debt that Motorola or the separate entity may have to incur since the mobile-phone business is losing so much money. The Wall Street Journal reports that the handset business needs about $4 billion to support itself as an independent company--about half of Motorola's total cash balance it will have at the end of 2008. All this could threaten Motorola's credit standing.

Meanwhile, it doesn't appear that any existing handset vendor is interested in buying the division--even private equity firms who like to take on the challenge of dramatically turning companies around and then selling them off once they are outperforming the market. Nor can Motorola seem to find a leader willing to take on the turnaround challenge (see story No. 1).

What is Motorola to do? There doesn't seem to any easy answers. At this point, it seems that maybe Motorola is better off abandoning its plan to spin off the division and significantly scaling back on the business, perhaps playing in just a few segments of the market. It's difficult to believe that Motorola's brand has been totally tarnished, despite the fact that its profit and sales have been terrible for two years. Can it perhaps partner with another vendor on designs? The handset division has some very attractive assets, and appears Motorola needs to become significantly more creative in figuring out a turnaround plan beyond spinning the division off. --Lynnette