Motorola looking to sell business
As part of its ongoing effort to focus on core businesses, Motorola confirmed today it is looking to sell its information systems group, which includes its modem business.
Motorola is exploring this option in an effort to refocus its resources on more strategic technologies and other products.
"The company is reviewing various options related to its Huntsville-based low-end modem business. In this process, it has retained Goldman Sachs to explore opportunities to sell the business. It is anticipated this review will be concluded during the fourth quarter," the company said in a prepared statement.
"This decision allows us to concentrate our resources on more strategic technologies," said Iain Morris, Motorola corporate vice president and general manager of Transmission Products Division.
The communications company has been stepping away from underperforming business lines in recent months, having recently dumped its Mac clone business after failing to reach an acceptable long-term licensing agreement with Apple Computer (AAPL) for the Mac OS operating system and the dynamic random access memory (DRAM) market.
Unlike its competitors, like Lucent (LU), Motorola has a portfolio of businesses. Its continued trimming off of some businesses is "a profit-driven decision," said Kenneth Leon, an analyst with AMRO Chicago.
"I am a bit concerned because [modems] were expected to be a good area of growth, and management was very bullish," said Leon. "But Chris Galvin, [ Motorola's CEO] told me that two businesses would be sold by the year end. So this move wouldn't be a big surprise."
Late last month, the company cut prices by almost 40 percent on some 56-kbps modems in an effort to spur sales as users continue to debate whether they want to buy non-standard equipment. A standard was expected last month, but fights over intellectual property rights and royalties stalled progress, and a preliminary standard now is not expected until January.
Quarrels over modem standards have left some customers delaying purchases of 56-kbps modems. And that delay is cutting into chip makers' and chip companies' sales. Analysts say stepping away from modems makes sense for Motorola as the company attempts to rid itself of areas that have not lived up to expectations.
Motorola has a number of modem businesses in the information systems group, including a corporate modem business, a consumer business, and a cable modem business.
"There are a number of different modem ventures and we are evaluating them," Clemons said. "The company continues reviewing businesses to position us for longtime growth and profitability."
Brian Modoff, an analyst at BT Alex. Brown, said modems are not a big portion of Motorola's business, and agreed with Leon that the move to shed the modem division is not surprising. For Motorola's full-year 1997 results, Modoff expects revenue of $30.2 billion, of which the biggest chunks are coming from cellular and semiconductors--$12 billion and $8.3 billion, respectively.
Modems, on the other hand, are categorized as part of "other products" revenue, which includes the computer business and modems, among what Modoff called a "cornucopia of other products" that are expected to generate $4 billion for the year.
"From a focus standpoint, [moving away from modems] is good news because the company's competitors are focused in the wireless area and are not trying to do other things. For Motorola to try to compete with US Robotics is foolish," said Modoff. "This would give the company a chance to focus on key elements, such as wireless infrastructure and semiconductors."
Motorola said in September that it would post a special $95 million charge in the third quarter as a result of its exit from the Mac clone business and weakness in the paging market.
After that announcement, analysts revised earnings estimates to 53 cents a share, down from 60 cents a share for the third quarter, according to First Call.
Motorola will report earnings for the third quarter ending in September on October 6 after the markets close.