Motorola moots Semicon Products Sector sell-off

Motorola has threatened to sell off its semiconductor unit - the division behind the PowerPC and Palm's Dragonball CPU - if the financially troubled operating can't turn itself around.

"No segment of the company is sacred in terms of being protected from its obligation to contribute to that level of financial return," Motorola investor relations chief Ed Gams told analysts this week. "There are no sacred cows here.''

"The present level of financial performance of the segment cannot be tolerated," he added. "Improvements are expected.''

And Motorola president Robert Growney said that a deadline has been set by which the company's chip division, the Semiconductor Products Sector, must show that it can start sufficiently contributing to the company's bottom line. Growney would not say how long the SPS has.

With its focus on embedded applications, particularly communications and networking products, SPS has been hit hard by the downturn in the global chip market. Sales of PowerPC chips for desktop computers, almost all of them to Apple, and Dragonball CPUs to Palm and its licensees have dipped too.

The SPS posted a $131 million operating loss in the first quarter, followed by a $381 million operating loss in Q2. However, a cost-cutting programme, including plant closures and job losses, has brought the division to break-even. Right now, it's praying for an upturn in the market to counter the significant drop on demand experienced during the first six months of the year. Even then, 2001 will see an overall decline of 15-20 per cent, the SPS reckons.

Apple may be doing less badly than other PC vendors, while Palm appears to be picking up, but even together they add up to a small percentage of Motorola's embedded sales.

But how serious is Growney's threat? Certainly, in the past, he has called the SPS a core Motorola business, and therefore safe from sale. That might suggest that his latest comments are as much about reassuring Wall Street that the company will take extreme measures to improve its financial position if it has to. It might also act as a verbal kick up the arse for senior SPS staffers.

Another option open to Motorola is to spin off the SPS, as Siemens did with Infineon, but the tone of Growney's latest and previous comments suggests as IPO isn't a choice the company is likely to pursue.

One other possibility presents itself, however. Motorola could indeed be selling off the chip business - or at least part of it. As we've reported before, Apple is believed to have the right to buy Motorola's PowerPC assets. Unsatisified with Motorola's progress in getting the PowerPC to compete more effectively with the x86 world, Apple has been putting more and more development effort into making the platform better suited to its own needs. The logical upshot of that - combined with Motorola's greater interest in the embedded market - would be to transfer PowerPC in its entirety to Apple.

Growney's comments can be read to pave the way for such a sale, which can now be presented as a streamlining of the SPS' business and as a money-making exercise both leading to profitability. At the same time, it allows Motorola to retain control over a core business: the development of chips for communcations markets.

Of course, Apple may not want to take on the PowerPC because it ties it to the platform more tightly than it is now, particularly now it has launched the potentially multi-platform Mac OS X. However, acquiring PowerPC from Motorola would put Apple in charge of its own destiny, and send a big message out to the world that it's support for the platform is undiminished.

In any case, it could buy the platform with its other PowerPC partner, IBM, set it up as a jointly-owned subsidiary, which would leave it room to manoeuvre later on should a change of platform ever become necessary.

So far, there's little to suggest an Apple takeover, but hints from one source claiming to be an Apple staffer. However, the plot's various strands do appear to be coming together, enough at least, to warrant a close watch over the coming months. Any Apple, IBM or Motorola staffers who know more can tell us all about it here. ®

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