Motorola Chip Spin: What's the Plan?
In a conference call this morning, Motorola executives answered most questions by referring to the S-1 form the company plans to file with the Securities and Exchange Commission (SEC). That left many details unaddressed, such as the semiconductor division's headcount or the timing of the spinoff.
"We were even debating whether to have a Q-and-A discussion," chief operating officer Mike Zafirovski said during the call.
That may well be, but so far there've been few A's to go along with the Q's.
Motorola calls its chip business the Semiconductor Products Sector (SPS), reflecting the company's love of three-letter acronyms. It's a $5 billion-per-year business, with 20 to 25 percent of that coming from Motorola, executives said on the call. But analysts have felt for years that SPS's costs are weighing the company down.
The plan so far is to spin off SPS entirely, then hold a public offering for a potion of SPS's ownership. The remaining SPS shares would be distributed to Motorola shareholders.
A spinoff could benefit both sides. As SPS is losing money, Motorola's bottom line would look a little better. Analyst Matt Hoffman of SoundView Technology Group increased his target price on Motorola to $16 from $14 on that basis. Hoffman had also bumped up his estimate after the news of CEO Christopher Galvin's resignation (see Motorola CEO to Retire).
For SPS itself, the spinoff could yield a better stock price by unlocking some value in the assets, giving the division some currency for possible acquisitions, Motorola CFO David Devonshire said during the call.
Galvin reportedly had opposed an SPS spinoff in the past, but on the conference call, he said he was the one who proposed the spinoff to the board, after a summer-long analysis of Motorola's position.
Motorola's shares have rallied since Galvin's departure, indicating that investors are eager to see a fresh approach at Motorola -- and that they like the idea of spinoffs. Motorola shares today rose $1.22 (9.93%) to $13.50 on the news.
The spinoff process will be headed by Scott Anderson, who was recently named CEO of SPS (see Moto Names Semiconductor Head).
— Craig Matsumoto, Senior Editor, Light Reading