Analysis: Is Motorola better off without the handset business?

BetaNews examines why Nomura financial analyst Richard Windsor toyed with the idea of Motorola surrendering its handset business to focus on enterprise and government solutions.

Recently, Nomura analyst Richard Windsor discussed the possibility of Motorola Inc. leaving the handset business in favor of becoming what he calls "an enterprise and government company." He noted that rumors of a Chinese buyout of Motorola are increasing, but the company's problems would not be easily fixed by such a buyout. He closed by saying Motorola will most likely regain its unsure footing after this year.

A point lost by many bloggers who went wild over this topic is that Motorola is not a dramatically suffering company. Rather, its enterprise aspect is strong enough to buoy the rest of the organization.

For example, Motorola scored a huge WiMAX contract with Wateen Telecom in Pakistan. The agreement to supply 198,000 end user CPE units amounted to one of the biggest single orders of WiMAX hardware yet. It also has a contract with Far EasTone for a WiMAX deployment in Taiwan, and one with ISP Agni Systems in Dhaka, Bangladesh.

Motorola's 2006 acquisition of Symbol Technologies helped the company branch out into enterprise mobility solutions, including the development of RFID systems. Symbol was contracted to develop these very systems for Norway's Ministry of Foreign affairs and National Police Computing and Material Service for collection and verification of biometric data for passports and visas.

In China, Motorola's presence is also strong. It has been a player in Chinese commerce for 20 years, and has had an ongoing partnership with China Mobile Communications Corp. for almost as long. In August, Motorola secured a contract worth over $394 million to expand the carrier's GSM network. China Mobile ranks as the second biggest mobile provider in the world behind Vodafone, a company for which Motorola has supplied technologies in Turkey, Spain, the UK, and dozens of other countries.

If Motorola was to turn over the R&D, manufacturing, and marketing of its cellular handsets and related products to another company, it could cut out what has lately been a major revenue drain. 2007 was closed out with the CEO giving up his position, and profits that were 16% lower than the year prior.

Regarding the likelihood of a Chinese buy-in to Motorola's mobile handset business, NPD director of industry analysis Ross Rubin pointed to a few examples of recent buy-ins of existing CE manufacturers by Chinese concerns, that have resulted in extended US presence for those manufacturers.

For example TCL's 2003 merger with Thomson's TV business, making it one of the world's biggest manufacturer of TV sets, and Lenovo's 2004 purchase of IBM's PC business were both examples of a Chinese company with less brand power coming into power through such a buy-in.

But Rubin warned the template put forth by Thomson and IBM may not readily apply to Motorola. He told BetaNews, "The Motorola brand is very strong in the US, but not as strong in Europe, and handset distribution in the US is more closely tied to carriers."

Though it may be unlikely that Motorola will sell its handset division to Chinese investors right away -- although it may be entertaining the idea now more than ever before -- were it to ever make such a move, it would not be without justification. At the very least, Richard Windsor's report may have opened some observers' eyes as to where Motorola's real strength lies.