Motorola has struggled to make an impact on the market since the success of the original RAZR phone and been under increasing pressure from one of its most prominent investors, US billionaire Carl Icahn.
Motorola said the handset business will operate separately from the part of the business which sells TV set-top boxes and modems, and its enterprise mobility solutions, which sells computing and communications equipment to businesses.
Chief Executive Greg Brown said splitting the company would allow each unit to better focus on its own business, particularly improving the struggling cell phone division.
Brown said Motorola will launch a search for a new chief executive of the Mobile Device business as it works to regain favor with customers and its number two position in the mobile market.
"Our priorities have not changed with today's announcement," said Brown. "We remain committed to improving the performance of our Mobile Devices business by delivering compelling products that meet the needs of customers and consumers around the world. As part of that effort, we have undertaken a global search for a new chief executive officer for the Mobile Devices business."