Motorola said on Thursday it is considering separating its loss-making mobile phone unit, in an apparent concession to demands from activist investor Carl Icahn, sending its shares up 12.7 percent.
The world's third-largest mobile phone maker, which has been losing market share to Nokia and Samsung Electronics, said it was looking at a "structural and strategic realignment" to help it recapture market share and enhance shareholder value.
Options include spinning off or selling the phone division, which accounts for about half of revenue. Motorola also makes television set-top box and network equipment.
RBC analyst Mark Sue said it made sense for Motorola to look at unlocking shareholder value, but it most urgently needed to fix its mobile devices business.
Motorola, which has a market capitalization of about $26 billion, dropped to third place from second in global mobile phone rankings last year amid criticism of its handsets.
"In the end, separation of a business entity doesn't really create value. The challenge still is to turn around the mobile device business," Sue said.
Motorola's handset revenue fell 33 percent last year to $19.0 billion, but still accounted for 52 percent of total sales. The unit made an operating loss of $1.2 billion last year, versus a 2006 profit of $2.7 billion.
Billionaire investor Carl Icahn, listed as Motorola's third biggest shareholder with a 3.3 percent stake as of September 30, has urged the handset maker to break up to increase value for its shareholders.
"For many months I have been publicly advocating the separation of Mobile Devices from Motorola's other business and I am pleased to see that Motorola is finally exploring that proposal," Icahn said in a statement on Thursday.
But he said he remained determined to nominate some directors to Motorola's board at this year's annual meeting. "We believe Motorola is finally moving in the right direction but certainly still has a long way to go," Icahn said.
Icahn had failed to win a seat on Motorola's board last year after a bitter proxy battle.
Motorola's share price has fallen more than 55 percent since its quarterly results started disappointing investors in October 2006.
The stock rose 12.7 percent to $13.18 in late trade on the news that it was exploring strategic options.
RBC's Sue said Motorola's current share price valued the mobile phone unit at less than its revenue, and the company was likely talking to a lot of outside parties including private equity firms.
"Internally, Motorola and the board has been somewhat frustrated by the market's view of their equity," Sue said.
In contrast to the declining phone business, Motorola's television set-top box and network equipment unit saw a 9 percent increase in 2007 sales to $10.0 billion, with an operating profit of $709 million.
Its enterprise mobility unit saw sales jump 43 percent last year to $7.7 billion, posting operating profits of $1.2 billion.
Motorola said it does not intend to discuss developments until its board of directors approved a definitive transaction or when the process is otherwise complete.