Motorola Split to Put One Entity In the 'Poorhouse'?

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For Motorola, "an unpleasant reality is emerging" about its planned split into two entities, according to the Wall Street Journal’s "Heard on the Street" column today.

"The mobile-devices division is losing so much money that breaking in two could put one or other of the newly independent firms in the poorhouse," the Journal wrote.

Moreover, the paper said, Motorola is having a tough time finding anyone who wants to be CEO of the money-hemorrhaging mobile devices unit. An HP executive who was the frontrunner, personal systems group EVP Todd Bradley, has pulled his name out of consideration, according to the Journal

Motorola in March said it would spin off the mobile devices business sometime in 2009.

Here’s the Journal’s math: Motorola, like other tech companies, must maintain more cash on hand because of the cyclical nature of the industry. The paper cites credit analysts predicting that the mobile-devices business will need about $4 billion to support itself for two years as an independent company.

Now, taking out $4 billion (about half Motorola’s expected cash balance at the end of this year) would probably leave the other company — i.e., the piece with the cable equipment business — with most of the $4.2 billion in debt, according to the Journal

That in turn would likely lead Motorola’s credit rating to be downgraded to "junk," increase its cost of borrowing, or "pressure the company to sell another division to raise cash."

And even though the enterprise-and-mobility group generates hundreds of millions of dollars in free cash flow, its profitability may be hurt by the breakup because separating shared factories and other resources could take months and cost as much as $750 million, the newspaper said.

The Journal pointed out that the mobile-devices unit could try to find new funding — adding that Motorola investor Carl Icahn probably won’t reach into his own wallet.

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