Motorola to spin off semiconductor business

Motorola to spin off semiconductor business

Motorola's embedded and networking semi-conductor business will be separated from the rest of the company's operations and spun off as a new entity.

Details of the proposed transaction have yet to be released.

Motorola was considering an initial public offering of its Semi-conductor Products Sector (SPS), chairman and chief executive officer, Christopher Galvin, said.

Motorola might sell a portion of the division to new investors through the initial public offering (IPO) process, and could distribute the remaining shares to current shareholders as a tax-free transaction, executive vice-president and chief financial officer, David Devonshire, said.

The company is required to file a S-1 statement with the US Securities and Exchange Commission that will contain more details of the transaction, but Devonshire set no specific timetable for that filing.

Over the last few quarters, Motorola had undertaken a strategic review of all of its businesses, Galvin said. It has concluded that SPS would be better off on its own, and that Motorola's existing cell phone and other communications business would benefit from the increased attention once SPS was a separate company.

SPS will be able to expand its product lines and businesses if it has access to public capital, Galvin said.

Motorola also believed the semiconductor industry was starting to rebound, which helped drive up the value of the new company, he said.

With the recent run-up in valuations of semi-conductor companies, Motorola must feel that it could get more for the division in an IPO than the division was probably worth on its own, senior research analyst with Sanford C. Bernstein, said Paul Sagawa, said.

Many semi-conductor companies were currently trading at valuations far above sales.

Motorola wanted to get into that game, he said.

"The dynamics of the semi-conductor industry are quite different from that of an equipment company," Devonshire said. "It's more cyclical, and more capital intensive."

Motorola's SPS division has followed a cost-cutting strategy dubbed "asset-light" by partnering with other companies for research and development and licensing its intellectual property in order to take in additional revenue.

The additional cash raised by an IPO would help SPS pursue more business opportunities without having to worry as much about keeping the balance sheet light, Galvin said.

The company's SPS branch makes networking processors, application processors for personal digital assistants and cell phones, and digital signal processors.

Its business has suffered along with the general downturn that has affected all semi-conductor companies over the last two years, but other chip companies have seen increases in sales in 2003.

In the second quarter, SPS reported revenue of $US1.1 billion, down 11 per cent from the second quarter in 2002.

Motorola will report its third-quarter results on October 14.

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