AUSTIN, Texas -- A spin-off of Motorola Inc.'s Semiconductor Products Sector is seen as more likely following the resignation of Christopher Galvin, the third generation head of the company.
One Motorola employee said that two years ago employees feared a separation from "the Motorola mother ship." Now, SPS employees "just want to be on a winning team," regardless of whether or not that means a separate company.
Galvin was believed to be against any sale or divestiture of SPS. Though the semiconductor operation is losing money, system-on-chip devices have become the repository of the company's most advanced intellectual property, Galvin told employees at a recent company event.
With Galvin gone, a new CEO may be more inclined to spin out SPS, a move that Wall Street has been suggesting for years.To be sure, SPS is struggling. Market research firm iSuppli Corp. ranked Motorola (Shaumberg, Ill.) in tenth place in its first half 2003 semiconductor rankings, with sales of $2.262 billion, down 1.8 percent compared with the year earlier first half.
The top 10 chip suppliers, on average, boosted sales by 9.4 percent during the first six months. Motorola sources attribute that to heavier communications revenues boosting SPS sales, but analysts note that the company has suffered from management problems.
Will Strauss, president of Forward Concepts (Tempe, Ariz.) said "In my opinion, management at SPS has been a comedy of errors in recent years. Hector (Ruiz) really screwed up SPS big time, organizationally speaking, and Chris Galvin has not been the leader that they company needed either."
Strauss said the chip division is unlikely to be sold to another semiconductor company anytime soon. With revenues of $4 billion to $5 billion, SPS is too big to be readily absorbed by another top 10-ranked semiconductor maker, he said.
The more likely scenario, Strauss said, "is to spin off SPS as a separate company and let it seek its own level" of valuation. "That might be the best scenario for everyone involved, including the SPS employees," Strauss added.
Tony Massamini, a Motorola analyst with Semico Research (Phoenix), said rumors have circulated for 15 years that STMicroelectronics or some other European chip maker would buy SPS, in part to gain Motorola's stable automotive IC business, which accounts for most of the profits at the sector.
Noting that Motorola is the leading vendor of communications processors, Massamini said Semico Research is bullish about the communications chip sector, which could bounce back in the mid-term and help the flagging SPS unit.
Massamini said ST executives told analysts during a fab tour last week that they see much of their future growth coming from the Asia-Pacific region. "If STMicroelectronics were to buy Motorola's semiconductor operations, it's hard to see how that would fit in with that overall strategy" of increasing sales in Asia, he said.
Strauss said it is likely that a new CEO at Motorola Inc. would demand a fresh look at the product mix at SPS, asking for certain product lines to be sold off. He noted that Motorola currently is negotiating with Tundra Semiconductor (Ottawa, Ontario) for the sale of Motorola's bridge chips, which support the RapidIO standard developed in part by Motorola.
Both Strauss and Massamini said it is too early to know what changes the new CEO will seek at the company. But Strauss noted that spinning off SPS may not be on the immediate agenda, largely because the cellular handset and basestation operations also are struggling to make money. The cellular handsets increasingly are being made by contract manufacturers in order to cut costs."