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Summary:

After several years of bleeding money, Motorola’s handset division is finally stemming losses thanks to co-CEO, Dr. Sanjay Jha, betting on Android. Jha will now head up the soon-to-be-spun-off division, to be called Motorola Mobility, in which the carrier will sink $3-$4 billion of cash.

When Motorola spins off its handset division next year, the newly independent company won’t be strapped for cash. Motorola Mobility, as it will be called, will start out with $3-$4 billion in the bank —  a direct injection from the carrier, according to the Wall Street Journal. In addition to the cash reserves, Motorola Mobility is expected to be unencumbered by pension liabilities and nearly all other debt, giving the new handset entity the best financial chance to fight against the likes of Apple, Research In Motion, Samsung and others in the fast-growing smartphone market.

The spin-off contrasts greatly with that of Motorola’s 2004 mobile chip subsidiary, Freescale, which made a $1.5 billion cash payment to Motorola funded in large part by the sale of $1.25 billion in notes. Essentially, Freescale bought its freedom by becoming laden with debt on day one.

The soon-to-be independent handset division has other advantages as well. By leveraging Google’s Android operating system with the right carrier partner in Verizon, co-CEO Sanjay Jha has helped ensure the success of the Motorola Droid. And operating losses for the handset division have dropped to $192 million in the most recent quarter from $840 million in the third quarter of 2008.

With so much potential cash and practically zero debt, as the new CEO of Motorola Mobility, Jha can devote money towards handset design and customized software while riding the Android train to profitability. And if Android starts to falter, the mobile phone company would have cash to spend on its own operating system if it so chose. It’s too bad that Motorola didn’t spin off a cash-loaded handset business sooner, given that HP is now buying Palm for $1.2 billion — Palm’s webOS platform would look great on well-designed Motorola hardware and such a purchase would have left plenty of cash for Motorola Mobility to woo developers with a solid new ecosystem.

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  1. Totally agree. Their current product updates are very un-Moto like. We barely had Droid and here comes the Droid X. While CEO Jha is talking about a 2 Giga Hz processor. Boy they are executing fast. Surely they are biting Apple.

    Your point on Palm was spot on. Moto’s mobile division is nimble. The combined company could have made serious handsets. HP is great too, but they are slooooow. Currently whoever executes quick and perfect will get mobile business. And Moto has them both, plus a smart CEO.

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  2. It appears that Motorola wants Motorola Mobility to be completely unencumbered by financial restrictions and completely focused on the mobile space. With that level of financial freedom Motorola Mobility has the advantage.

    I think that Android is a good mobile OS. The Open Handset Alliance just needs to produce better standards — for the young OS. I am not sold on the Palm OS being a better fit for the new company. In any event, Apple — being the 800 lbs gorilla — needs to keep hustling. There are a number of mobility companies wrestling to dethrone Apple and competition just got a little tougher thanks to Motorola Mobility.

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  3. How do they compete with HTC, Samsung, BB, and other vendors? What is their advantage? The business model is doomed.

    Handset alone is not a defensible business. There is no stickiness. BB is ok so far (but won’t be for long) because of the enterprise side. Mot Mobil has none of that. It’s purely consumer commodity. Further, Mot Mobil has no brand extension into other electronics, unlike Samsung.

    As such there is no chance of success. Jha will milk a long of money for himself. No question about that. But that will be all.

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  4. [...] riding Android profits to record highs, Motorola’s Android bet is paying off in the form of a spin-off company awash with cash and Samsung has sold over five million Android smartphones in roughly four months this [...]

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