PARK RIDGE, ILL. Executives at Motorola Inc.'s Semiconductor Products Sector promised this week that the impact of its pending spin-off from the parent company would be minimal for embedded product developers who now use its hardware.
"The most visible difference for customers will be the name change," noted Ray Burgess, corporate vice president and director of strategy for Motorola's Semiconductor Products Sector (SPS). "But the products, people, projects, the markets we serve, and the way we serve them will not be materially changed."
The world's biggest producer of embedded processors, SPS is expected to separate from Motorola, Inc. in 2004, with an initial public offering (IPO) possibly occurring as early six months from now.
SPS, which had sales of $5.1 billion in 2001 and $5.0 billion in 2002, lost $1.57 billion in 2002 and $246 million in the first two quarters of 2003.
Motorola executives repeatedly said last week that the spin-off was being done to "unlock the value of Motorola's businesses." The key advantage to separating SPS from the mother company, they said, is that the stock values of semiconductor companies tend to be higher than those of equipment companies, thus providing the new spin-off with greater financial flexibility to acquire new intellectual property and product lines.
"We're doing the separation to unlock the value of the semiconductor business from within the conglomerate," Burgess said. "In the mid- to long-term, that opens up a lot of new possibilities for us."
Analysts in the embedded industry, however, said last week that there's no guarantee that SPS won't shed a few products after its IPO.
"Some of the processors and microcontrollers that were not making the grade in terms of profitability might get cut," noted Chris Lanfear, an analyst for Venture Development Corp. (Natick, Mass.) "If you're a $5 billion part of a $27-billion company, you can get away with having a few money-losing products because they might make strategic sense. But as a stand-alone company, you have to rethink some of those line items."
Burgess of Motorola said that the spin-off is not comparable to Motorola's sale of what is now known as ON Semiconductor a few years ago. ON Semiconductor, which struggled after the sale, was different because it shared technologies, intellectual property, and manufacturing facilities with Motorola SPS, Burgess said.
"It was a very complex set of transactions," Burgess said, referring to the ON deal. "It was like trying to sell your living room to someone while you're still living in the rest of your house."
Analysts said that ON struggled, in large part because the deal was consummated shortly before the bottom dropped out of the semiconductor market. ON, which was initially profitable, hit hard times in 2000 and 2001, when its stock price dipped from $21 to about $0.90 per share.
Burgess pointed to semiconductor market forecasts that call for sequential growth from now through 2004, and noted that such forecasts suggest that the timing of the spin-off is good.
"The right thing for us to do is to separate while we've still got a little runway ahead of us, in the form positive market momentum," he said.