Motorola plans to split into two in January

CIOL Bureau
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NEW YORK, USA: Motorola Inc has narrowed the time frame for its plan to split the company to next January, co-chief executive Greg Brown said on Monday.


Motorola had already said it would split in two in the first quarter, creating Motorola Mobility, which will sell mobile phones and television set-top boxes, and Motorola Solutions, which will sell wireless gadgets such as walkie-talkies to government organizations and businesses.

Brown, who will head Motorola Solutions, said on Monday at the unit's first investor conference that he expects revenue growth in a range of 4 percent to 5 percent in 2011 and set a long-term growth target of 5 percent to 8 percent.

The target is for a slower growth rate than Motorola Solutions' target for growth in a 7 percent to 8 percent range for 2010 as this years projected revenue of $7.7 billion to $7.8 billion, looks unusually strong in comparison with very weak 2009 sales because of economic weakness last year.


Motorola Solutions also said revenue at its proprietary iDen network equipment business would fall to $300 million in 2011 from $400 million in 2010. A big reason for the decline is a cutback in spending on iDen at U.S. operator Sprint Nextel Corp, which is focusing instead on newer technologies.

Since Motorola Solutions derives about 65 percent of its revenue from the public sector, some analysts at the event were worried about its prospects in that area as bellwether network equipment maker Cisco Systems last week cited weakness in public spending for its disappointing revenue outlook.

"We'd want to see how they get there in this tough economic climate," RBC analyst Mark Sue said.


But Motorola said it may be in a better position than Cisco because the majority of its public sector business is for public safety systems, which is seeing strength right now. This compares with Cisco, which sells to a broader public market where spending has been cut in some segments.

"We're a different business. We're not looking at this through any rose colored glasses," Brown told analysts, adding that the forecast "incorporates largely the environment we're seeing today."

Asked about the enterprise business, Brown told reporters that this business had bounced back since the economic downturn. "We feel we're well positioned for 2011," he said. Referring to corporate technology spending, he added: "We've seen that it's back and we don't see any disruption."


Brown expects Motorola Solutions to have an investment-grade rating at separation and vowed to consider dividend payments after the split once the company's debt leverage declines.

Chief Financial Officer Edward Fitzpatrick said he would not start considering a dividend payment before paying back $600 million in debt that comes due in late 2011.

"It would be a year before we'd be thinking about it," Fitzpatrick told reporters after the analyst meeting.


His target is to reduce the ratio of Motorola's debt to earnings before interest, tax, depreciation and amortization from 3 to somewhere between 2 and 2.5.

Motorola Solutions expects an opening balance sheet with $2.9 billion in debt and $5.3 billion in cash for Motorola Solutions when it becomes an independent entity next year.

It forecast an operating profit margin of 16 percent for 2011 -- up from 15.2 percent for the first three quarters of 2010 due to a previously announced plan to cut costs.


Long-term, it set a three-year margin target of 16 to 18 percent.

Motorola Solutions, which drew 58 percent of its revenue from North America in the third quarter, is looking to markets such as China for much of its growth, according to Mark Moon, the unit's senior vice president for sales.

"We need to get more growth from international markets," Moon said.


In particular, he sees growth from public sector customers such as public safety organizations.

"There's clearly still a lot of money flowing to governments and governments are still spending," he said, citing opportunities in both the United States and overseas.

In particular, Motorola cited growing efforts by public safety groups to build broadband wireless networks for services such as video feeds from the scene of an accident.

But Gene Delaney, the company's executive vice president for products and operations, said it would take some time for such projects to make a big difference.

"I would think of 2011 as a lot of trial activities. I wouldn't look for material revenue from broadband until 2012 or 2013," Delaney said.

Motorola is splitting after years of losses at its mobile phone business, which, until recently, had a tough time coming up with products that were competitive with rivals such as Apple Inc and Research In Motion Ltd.

Co-CEO Sanjay Jha will head the Motorola Mobility unit.

Motorola shares closed off 5 cents at $7.94 on New York Stock Exchange.