Executives said the move will allow the two companies to better focus on their respective strengths and weaknesses, while accelerating the turnaround plan for the cell phone unit, which has seen its fortunes slip after trend-conscious customers lost interest in the Razr flip phone.
"The creation of the two independent publicly traded companies provides improved management focus and a capital structure that's more tailored to the individual business needs," said Chief Executive Greg Brown, who will remain at the helm of the split company's non-cell phone unit. "And it will provide some improved alignment and agility and will help us going forward."
Specifics of the deal haven't been disclosed, but Motorola said its handset business will operate separately from another company offering its TV set-top boxes and modems and its computing and communications equipment.
Schaumburg-based Motorola said it anticipates the transaction will be tax-free, allowing shareholders to own stock in both of the new companies. If the deal is approved by regulators, the two units would be separated in 2009.
Officials haven't said whether one company or both will retain the Motorola brand name or which company will distribute stock to existing shareholders.
Many other questions remain about the plan, the success of which may take years to measure. But analysts said it likely means a widely anticipated sale of the cell phone unit is on hold.
"We're not convinced splitting the organization ultimately enhances shareholder value, but at least the beleaguered company is trying different things," said RBC Capital Markets analyst Mark Sue.
Some on Wall Street saw the split more favorably and said it would help fix the cell phone unit, which accounted for $19 billion in revenue last year. Motorola's other businesses brought in about $18 billion.
"We view this as a clear positive, as it will make it easier for Motorola's mobile devices business to attract talent and execute its turnaround," Morgan Keegan & Co. analyst Tavis McCourt told investors in a research note.
Others worried about the long term.
"We are skeptical as to whether separating the mobile devices business will improve the pace of recovery in this division," Wachovia analyst David Wong wrote to investors. "We believe that the eventual recovery of the handset business could best be achieved by the handset division remaining associated with the other, stable and profitable, business lines."
Motorola already is seeking a new chief executive for the newly independent mobile device business as it works to return to the No. 2 position in the cell phone market.
Motorola lost that spot last year to rival Samsung Electronics Co. Finland's Nokia Corp. remains the undisputed industry leader.
Wednesday's announcement was just the latest shake-up at Motorola, which rode the success of the iconic Razr phone from 2005 to 2006, but has stumbled amid stiff competition.
Last year, the company pulled back from developing markets and cut 7,500 jobs, and CEO Ed Zander resigned.
A flock of executives left the company this year, and more cuts and changes are likely as the new management team scrambles to retain control.
Icahn, who has been steadily increasing his Motorola position, disclosed in a filing this month that he now owns 142.4 million shares, or 6.3 percent of those outstanding - up from 5 percent a month ago.
Icahn sued Motorola earlier this week, seeking documents about its executives and its cell phone business.
He plans to use the material in his battle to win four seats on the Schaumburg-based company's board, his second proxy fight in two years with Motorola. He rejected a concessionary offer of two seats from the company this week.
A message left Wednesday with Icahn's office wasn't returned.
Motorola shares climbed 25 cents, or 2.7 percent, to $10.01 in afternoon trading Wednesday.
© 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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