Concerns about Oracle earnings and Google's ad business added to the usual worries about the economy this week, as Motorola's plan to split up sparked some enthusiasm among company watchers.
Motorola's decision to split into two publicly traded companies, one focusing on mobile device manufacturing and the other on network infrastructure, reassured many investors that the company is serious about making changes to address some long-standing problems. In cutthroat competition against Nokia and other handset-maker rivals, Motorola has suffered from a lack of a hit product.
Separating the device manufacturing business into a focused business will allow the company to highlight and attack specific problems. Meanwhile, the other half of its business, which includes enterprise mobility, network infrastructure and "connected home" applications, will be allowed to come out of the shadow of the manufacturing side of the business, potentially unlocking some value for shareholders.
"The mobile device biz (50 per cent of overall Motorola Biz in recent quarter results) has been suffering. Separating it into a dedicated unit allows it the runway to fix some of its issues in supply chain, innovation," according to an e-mail note from Forrester.
The separate businesses will be publicly traded next year. Many analysts voiced concerns that the company did not go into detail about its breakup strategy. Nevertheless, the decisive action appeared to cheer investors. Company shares edged up by US$0.26 to close at $10.02 Wednesday, though they drifted down again Thursday in a generally depressed market climate.
IT investors have been running scared this year, fearing that a general economic downturn will hit business and consumer spending on IT. A Commerce Department report on Thursday saying that the US gross domestic product fizzled in the fourth quarter of 2007 added fuel to the fears. In the fourth quarter, GDP grew at 0.6 percent, compared to 4.9 percent in the third quarter. The Nasdaq declined by 43.53 points, or 1.87 percent, Thursday to close at 2,280.83 points.
In this climate, any sign of weakness causes investors to flee companies.
For example, ComScore on Thursday reported that the number of people clicking on ads on Google search pages last month declined about 3 percent from January. Lehman Brothers and UBS immediately lowered earnings forecasts for Google. The company's share price plummeted Thursday by US$14.1 to close at US$444.08. Google share price has declined 36.5 percent since the beginning of the year.
Some analysts blamed Oracle as one reason the Nasdaq slumped Thursday. Oracle said after the market closed Wednesday that third-quarter revenue was up by 21 percent to US$5.3 billion, compared to the same period in 2007, and that net income for the period increased 30 percent to US$1.3 billion. Though income met expectations, the revenue figure fell short. Oracle shares closed at US$19.43 Thursday, down by US$1.51.