Earlier this month, Motorola’s planned split went through, giving investors a chance to watch their money (hopefully) grow within the consumer technology division Motorola Mobility (NYSE:MMI) and the infrastructure business Motorola Solutions (NYSE:MSI). While shareholders may not reaping the benefits just yet, they will when — and if — Motorola’s line of Google (NASDAQ:GOOG) Android devices, like the XOOM tablet PC, take off later this year.
A few other players in the technology industry could also benefit greatly from spitting up their divisions, maximizing profits for one while allowing the company’s underperforming or stagnating divisions room to grow with devoted investment.
Here are three companies that could benefit from breaking up in 2011.
Microsoft
Discerning tech-sector followers may recall a small dustup at Microsoft’s (NASDAQ:MSFT) annual shareholders meeting last November. One man in attendance that described himself as “another shareholder frustrated for more years than I care to admit” suggested to CEO Steve Ballmer that, rather than spend another year watching MSFT’s share price remain flat, the company should finally be split up. Ballmer and Chairman Bill Gates scoffed at the idea, responding that the cohesion between Microsoft’s disparate divisions allowed them the stability and health to continue innovating while remaining profitable.
It’s hard not to think that a shakeup might do Microsoft a world of good. There are two different Microsofts right now. One is the aging company whose still-ubiquitous software like Web browser Internet Explorer and the Windows operating system are seeing market share declines as consumers turn to handhelds like smartphone and tablets for personal computing.
The other is the entertainment company with the Xbox 360 gaming console, hands-free controller Kinect, and online gaming network Xbox Live which are defining an industry. Shouldn’t Microsoft’s thriving game hardware business be allowed to grow unencumbered by its dogged divisions?
Sony
Rumors of Sony (NYSE:SNE) breaking up its different divisions into their own businesses have persisted for over a decade. Indeed, when Howard Stringer was named the very first non-Japanese CEO of the company in 2005, most Wall Street analysts predicted his very first move would be to sell off Sony’s entertainment divisions like Sony Pictures and Sony BMG (now Sony Music Interactive) to focus on the company’s hardware business.
Stringer did no such thing, and some believe Sony is now at its weakest. The company has been hurt by years of slow high-definition TV adoption, the inability to replicate the success of the PlayStation 2 gaming console with the Playstation 3, and the failure of the Blu-ray disc video format to succeed in the way DVD did at the beginning of the last decade.
Stringer insisted at this past Consumer Electronics Show that 3-D, a home entertainment technology to which consumers have shown total indifference, will guarantee the company’s future success. If rumors are true that Sony Computer Entertainment President Kaz Hirai will succeed Stringer in 2011, Hirai should lay the groundwork now to divide Sony’s hardware business from its entertainment product business. Free of ill-advised initiatives like Music Unlimited, Sony can refocus its hardware initiatives, while divisions like Sony Pictures, now independent, can better allocate its profits.
Hewlett-Packard
There’s an important lesson for Hewlett-Packard (NASDAQ:HPQ) to learn from Motorola’s recent split: service and consumer electronics businesses can see their growth stunted if they’re stuffed under one roof. Not much of the technology industry exists where at least a tendril of that H-P can’t be found. From simple calculators all the way to massive server banks for businesses, H-P does it all.
But this is going to be a pivotal year for the company — on Feb. 9, for example, it will unveil its new Palm-branded tablet PC. The PalmPad could come to define H-P’s consumer business for the coming decade, and both consumer and developer response to the new operating platform could lead to that software defining all of H-P’s products.
This is an ideal time for H-P to split its service business, including branches like H-P Enterprise Business, from its consumer products business. According to Neuberger Berman analyst Marvin Schwartz, H-P is producing $800 million in free cash flow each month and the company should be able to clear out all its debt inside of 6 months. Splitting the company into service and products, much like Motorola did, will allow both businesses to grow unencumbered by one another.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.
