By Roger Cheng
NEW YORK (Dow Jones) – Motorola Inc.’s (MOT) decision to bundle together its mobile devices and home products divisions in a pending spin-off indicates the company plans to use video to set itself apart in the ultra-competitive smartphone market.

The Schaumburg, Ill., company on Thursday laid out a new plan to evenly split the company instead of separating just the handset unit. By keeping cellphones and cable set-top boxes together under one company, Motorola is better able to integrate video service found in the home with burgeoning consumer interest in mobile content.

“This structure places us uniquely to take advantage of the trends,” co-Chief Executive Sanjay Jha told Dow Jones Newswires.

Motorola boasts the world’s largest television set-top box business, giving the company a rare line into the home. The company also has made strides in turning around its struggling handset business, jumping from nothing to No. 3 in North American smartphone sales during the fourth quarter.

The company envisions combining the capabilities of both divisions, enabling consumers to take videos stored on their cable boxes, and seamlessly moving them onto their phones.

“Strategically, it makes perfect sense. There’s no question that success in one area can be leveraged in the other,” said Avi Greengart, who runs consumer device research for Current Analysis.

It remains unclear, however, how hard consumers and video providers are clamoring for such services, and how quickly these integrated services will appear. The company has long talked about creating an environment for video to hit multiple platforms, but it has little to show for its aspirations.

“This seamless mobility strategy is a reincarnation of sorts of a prior strategy that never came to realization,” said Maynard Um, an analyst at UBS.

The intensifying competition in the smartphone market may spark a renewed effort. While Motorola’s smartphone push has seen initial success, the company has yet to truly distinguish itself.

The Droid enjoyed its moment as the phone with the latest version of Google Inc.’s (GOOG) Android mobile software for a few weeks before attention shifted to Google’s own Nexus One device. Motorola points to Motoblur, a social networking-centric user interface that runs on top of Android, as its main differentiator.

Still, it remains a challenge to stand out among a wave of Android phone, as well as the Apple Inc. (AAPL) iPhone and Research in Motion Ltd.’s (RIMM) Blackberry line. The company could make its mark by throwing Motoblur into its set-top boxes.

Motorola isn’t the only one with these aspirations. Apple has tried to link its iPhone and Mac line of computers to the television, but hasn’t seen much success with its Apple TV product. Many expect Microsoft Corp. (MSFT) to tout a deeper link between its Windows PC operating system, its Xbox 360 video game system, the Zune media player and Windows Mobile software for smartphones during next week’s Mobile World Congress.

Video providers are also embracing the trend. AT&T Inc. (T) often refers to it as its “three-screen” strategy. Cable companies such as Comcast Corp. (CMCSK, CMCSA) have been tinkering with bundling wireless with its core services, while privately held Cox Communications Inc. plans to start its own cellphone offering. Dish Networks Corp. (DISH) purchased wireless spectrum in the last government auction for a possible mobile TV service.

Jha declined to tip his hand on potential products, but he noted that the divisions were already looking at various projects linking the capabilities of both units.

“We are already working on products that are relevant to consumers,” Jha said.

As part of the split, Motorola’s debt gets shifted away from mobile devices business, giving Jha a fresh start. The addition of the set-top box business means a source of steady cash and financial flexibility as the mobile devices continues with its turnaround. While Jha expects the unit to return to profitability in the fourth quarter, more volatility is expected in the following quarters.

The home business isn’t without its challenges. The set-top box isn’t purchased by the consumer. Instead, the cable, telco and satellite providers provide the box for a small monthly fee. As a result, upgrades take longer since the decision is made by a large company, rather than the individual.

In addition, the wireless carriers have a lot of say in what goes into their cellphones. Some carriers may not want to push those video capabilities, because moving the content around could potentially overload their networks.

“The opportunity is there, but whether Motorola can capitalize it is another question,” Greengart said.

-By Roger Cheng, Dow Jones Newswires; 212-416-2153; roger.cheng@dowjones.com

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