(Marek Pawlowski will be providing analysis of Motorola’s major announcement today for BBC Television’s World Business Report programme at 1830 GMT).

The handset industry has much to thank the Motorola RAZR for. When it was introduced in 2004 it forced manufacturers around the world to put their designs on a diet so they could compete with the sleek lines and runaway popularity of the RAZR. It also spurred demand for clamshell devices and encouraged other manufacturers, particularly Nokia and Sony Ericsson, to experiment outside the traditional monobloc designs which characterised their product portfolios.

However, Motorola itself may be less inclined to lavish praise on the slimline RAZR and all the resulting spin-offs. Despite its strong sales record, the RAZR has been a double-edged sword for Motorola. It left an industrial design legacy which crippled innovation in its handset business and soured the Motorola brand for a huge number of consumers who were seduced by the RAZR’s looks and then punished by its poor user interface and software design.

In my January 2006 article on the RAZR entitled ‘Playing to win in the handset market‘ I wrote: “…Motorola’s success in the market will not be sustainable in the long-term if it continues to focus on designing around form-factors, rather than designing experiences around users.”

After months of pressure from investors, Motorola today announced it would separate its business into two publicly-traded entities, effectively spinning off the failing handset division from the more successful Enterprise and Home Mobility Networks units.

The move caps a disastrous 18 months for Motorola’s handset business. According to our PMN Handset Industry Insight service, its market share fell from 22.2 percent at the end of 2006 to 13.9 percent at the end of 2007. While global handset industry sales rose by 16.5 percent in 2007, unit shipments at Motorola declined 27 percent. The handset business has reported negative margins in all 4 of its last quarterly reporting periods. In fact, each handset Motorola sold in 2007 actually lost the company an average of about USD 6.50.

It’s no wonder Motorola has struggled to find a partner willing to buy the business or pursue a merger since putting up a ‘for sale’ sign in January 2008. The company’s best hope seems to be to appease investors by seperating the company into two, clearly defined stocks and hoping it can rebuild the handset business into a more saleable, attractive asset.

If recent management departures are anything to go by, it is clear that Motorola faces a wide range of challenges to get the business back on track, with improvements needed in everything from design to supply chain management.

However, most fundamental of all, Motorola needs to demonstrate it can deliver a user experience which actually connects with customer needs. It needs to completely overhaul its product portfolio and start delivering handsets which excite potential customers and reward long-term users with a compelling UI and great design.

I can’t think of a single recent Motorola handset with a standout feature. The ‘Q’ smartphone is a good product, benefiting from solid build quality, a great keyboard and highly usable form factor. The slider mechanism employed by the Z8 and Z10 is unique. However, even among these products – and I have picked the very best in the current portfolio – there is nothing like the innovation, ease of use and functionality provided by numerous Nokias, Samsungs and Sony Ericssons.

The RAZR legacy, which spawned variants like the PEBL and the KRZR, left Motorola tied to a design DNA and hardware platform which was out-of-date 18 months after the first RAZR shipped. 4 years on and the company is still clinging to elements of this in its porfolio.

On the software platforms and UI side, Motorola is in a crazy mess. It currently manufactures devices with its own proprietary, low-end OS, Windows Mobile, the Danger Sidekick platform, Symbian OS, a seperate custom-built Linux and Java platform and – to add further confusion – it has even announced support for Google’s Android.

Despite this breadth of development platforms, Motorola can lay no claims to technological innovation. It missed the recent camera phone upgrade cycle by lagging behind in offering a 5 megapixel handset. It missed the music phone boom by failing to capitalise on its early deal with Apple to develop an iTunes-compatible handset. It is now missing out on the next cycle – the embedding of GPS – by failing to offer any mainstream consumer products with this feature.

Motorola also wasted a great opportunity to play a leading role in developing markets. It won the first two tenders put out by the GSM Association’s Emerging Markets Handsets Initiative, delivering guaranteed orders for low-cost handsets from a worldwide consortium of network operators. However, Motorola has since pulled back from this part of the market, trying to stem its falling margins by focusing on higher-end products. The result has been a field left wide open for Nokia, which has moved in aggressively and proven that it can make healthy profits on selling huge volumes of low cost handsets in India and China.

Motorola must now conduct a complete, top-to-bottom review of the handset business and decide where its future lies. It no longer has the scale to be all things to all people. It must focus on a handful of key market segments in one or two territories around the world. It must rationalise its technology platforms, so that it can deliver handsets more quickly, with a more consistent interface and at lower cost.

Once appointed, the new CEO will face an enormous challenge to return the business to profitability. However, there is also a unique opportunity to cut free from the company’s tarnished legacy and build a truly modern handset manufacturer. One possibility in particular springs to mind: to focus on becoming the leading proponent of Google’s Android platform.

Whichever way the business goes two things at least are clear. Firstly, the financial and operational results are likely to get worse before they get better. Second – and most importantly – the Motorola brand must be re-engineered to stand for a good mobile user experience, parting forever with the negative connotations of the RAZR era.

Handset manufacturer strategy will be a key part of our debates at MEX, the 4th annual PMN Mobile User Experience conference, in London on 27th – 28th May 2008. The 2008 MEX Manifesto, which forms the heart of the conference programme, looks at the future of handset industry strategy from a wide range of perspectives. Register today to be one of the 100 leading thinkers gathering at MEX to set the user experience agenda.

(Marek Pawlowski will be providing analysis of Motorola’s major announcement today for BBC Television’s World Business Report programme at 1830 GMT).