Motorola Betting Billions on New Handset Spinoff

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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