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Motorola Stock Yo-Yos Higher on Merger Talk; Company to Realign Businesses

The handset maker’s future is up in the air as Sprint PCS-Nextel merger hangs in the air.
December 15, 2004

AP Business Writer

CHICAGO (AP) – Motorola Inc.’s shares bounced back Monday after falling sharply at the end of last week amid conflicting views on how the telecommunications equipment maker would fare if Sprint Corp. buys Nextel Communications, its largest customer.

The 5 percent stock surge came as the company said it will realign its businesses into four groups – focused on personal devices, networks, government and enterprise, and the connected home. The run-up in shares began before the announcement.

CEO Ed Zander said the organizational changes, which were not disclosed in detail, will improve Motorola’s focus and operating efficiency.

“With a more streamlined structure, Motorola will boost its flexibility and speed to capitalize on new opportunities allowing us to deliver seamless mobility to our customers and consumers worldwide,” he said.

The changes will take effect beginning Jan. 1. The company said it expects to provide additional details during the first quarter.

The announcement came less than two weeks after Motorola completed the spinoff of its semiconductor unit, which had been its second-largest business, into Freescale Semiconductor Inc.

No employees will lose their jobs as a result of the changes, spokeswoman Jennifer Weyrauch said. The Integrated Electronics Systems Sector is being disbanded but its employees will report to different groups, she said.

Motorola has 65,000 employees, down from a peak of 150,000 in the summer of 2000. Most of those jobs were eliminated under the previous CEO, Christopher Galvin, while 23,000 positions were spun off with Freescale.

Shares in the cell-phone maker rose 86 cents to close at $17.15 on the New York Stock Exchange, making up much of Friday’s 7.8 percent decline.

Numerous analysts said last week that the rumored Sprint-Nextel pairing would be bad for Motorola because it would jeopardize its lucrative, decade-long business ties with Nextel, in which Motorola was an early investor.

That view was disputed Monday by American Technology Research analyst Albert Lin, who said the market’s “knee-jerk” selloff of Motorola stock Friday overlooked the fact it could potentially sell more phones if the rumored merger takes place.

At issue is Motorola’s future role in a company that provides nearly 20 percent of its cell-phone and wireless network infrastructure sales. Schaumburg, Ill.-based Motorola specializes in digital wireless technology called iDEN, which powers Nextel’s push-to-talk phones, whereas Sprint’s wireless network relies on the CDMA standard.

Sprint only recently began offering its first Motorola phone to customers, according to Lin, but might become a larger customer as a result of Motorola’s innovative series of new products.

“With Nextel … Sprint would almost have to consider Motorola as a supplier,” the analyst said in a note to investors. “Sprint is a new opportunity for Motorola that is far larger than Nextel.”

The company is not commenting on the impact of a merger because it remains just a rumor at this point, other than to characterize both Sprint and Nextel as good customers of Motorola, Weyrauch said.

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