Life after Qualcomm: Sanjay's big reward

The breakup of Motorola became effective Tuesday: Motorola Mobility (MMI) gets cellular handsets and settop boxes, Nokia Siemens gets the cellular infrastructure business, Motorola Solutions (MSI) gets government & industrial radio clients, and Sanjay Jha gets to be COO.

The split brought a nice day one stock bounce of 9.5% for MMI and 6.6% for MSI.

On one level, it marks an ignominious end for the company that invented the handheld cellphone. It also clears the way for one or both of the companies to be gobbled up by bigger companies — no small concern given that Carl Icahn owns $2b worth of shares and (as always) wants to maximize his own short-term return rather than build a long-term winner.

It didn’t have to come to this: Motorola was the world leader in handset sales as late as 1997 and second until 2007, when it still led the US cellphone market. However, it was late to shift to digital and late to shift to software. (By comparison, the infrastructure business was never able to master the complexity of telephone switching and became uncompetitive once mobile radio technology diffused throughout the industry.)

Its handset business has been losing money for many years. As announced in March 2008, the handset spinoff was an attempt by CEO Greg Brown to dump the losing handset business after being unable to sell it. Even with its recent improvement, its survival is by no means certain.

Motorola co-CEO (now MMI founding CEO) Sanjay Jha deserves full credit for the turnaround over the past 30 months, in large part through his bold decision to bet the farm on Android. It’s too soon the say whether the turnaround is permanent, as MMI faces brutal competition in all the major categories where it competes: US market, smartphone market, Android handset market and even for Verizon’s loyalty (with the iPhone LTE due Real Soon Now.)

Still, it’s a good move for Jha, who as COO of Qualcomm was going to grow old waiting two or three decades for Paul Jacobs to retire. Very few Qualcomm execs seem to want to leave the mother ship — whether it’s because of the weather, lifestyle, or gross margins, I don’t know.

His gamble to move back east has certainly paid off. Even if MMI is unable to pull it off, he will certainly be snapped up by another tech company. Exhibit A: Eric Schmidt, who jumped from the sinking Sun Microsystems ship to become CEO of Novell and — without fixing its intractable problems — got named CEO of Google.

One unresolved question: will MMI keep settop boxes? The former General Instruments (with major operations in San Diego thanks to the Linkabit Videocipher spinout) accounts for about one-third of its revenue, but there are few obvious synergies. Now that Cisco owns its main competitor, Scientific Atlanta, there’s no obvious exit strategy, but I imagine finding a home for the STB business will be one of Jha’s 2011 priorities.

Cross posted to Open IT Strategies.

Motorola to spit out General Instruments?

One of the first and most important Linkabit spinouts was the Videocipher division, which designed and built settop boxes for 10' C-band dish owners who wanted to watch HBO. In the late 1970s, Videocipher was one of Linkabit’s fastest growing divisions and slated to become its first high-volume consumer business; the Linkabit founders have said that the capital needs of building this business were a major factor in selling the company to M/A-COM.

M/A-COM acquired all of Linkabit in 1979-1980, and then after Andy and Irwin left, M/A-COM sold Videocipher (and other commercial TV businesses it had acquired) to General Instruments in 1987 for $220 million. The local San Diego GI team worked on a number of issues related to settop boxes, including the DOCSIS standard that both enabled the widespread adoption of cable modems and commoditized the business, destroying profit margins.

In 1999, Motorola offered $11 billion for General Instruments and the deal closed in January 2000: for almost a decade, the local ex-Linkabit outpost has been a Motorola facility. Continuing to build on the original Videocipher direction, San Diego is headquarters for the public key infrastructure (cryptography) operations of Motorola Inc., assuring Hollywood today (as 30 years ago) that no one is going to get copyrighted entertainment without paying for it.

Now the WSJ reports (picked up by others) that Motorola is looking to unload the settop box division for about $4-4.5 billion. It’s not clear whether the buyer would be another telecom company or a private equity firm hoping to spruce it up and resell it. I’ve not been out to the Sequence Drive facility in several years, but my impression was that the division (like the rest of Motorola) has been enduring a series of job cuts.

Motorola — co-led by former Qualcomm COO Sanjay Jha — is also said to be re-opening plans to dump its declining handset business, once the market leader but for the past few years in rapid freefall. Jha was hired in August 2008 to run the handset business, but the spinoff was halted this time last year after it was clear the business had to be fixed before it could be sold.

As Jha predicted six months ago, Motorola has gotten a nice bounce from its Android phones, suggesting that now is the time to sell (or spinoff) the division. No word on whether Jha will stay with the mobile division he currently heads when it’s spun out; in the past year he’s been much more visible than the other CEO, Greg Brown, who heads the broadband division.

Motorola Android phone?

Business Week reports that Motorola is showing its prototype Android-based phone to carriers, but it’s not due until at least April. The project is staffed in the Bay Area by employees of Good Technology, the push e-mail company acquired by Moto in January 2007.

GigaOM notes that incoming Moto handset CEO Sanjay Jha has good ties to Google from his time as COO of Qualcomm. (Qualcomm chips are in the first gPhone from ATC).

While the timing would support Motorola’s planned jettisoning spinoff of its handset division, Forbes speculates that due to the financial crisis, Motorola may have to push back the date.

Hat tip: Kevin Maney in Conde Nast Portfolio.