New CEO faces need to set Motorola priorities

Some suggest company would do well to focus on enterprise mobility

Edward Zander's departure as CEO from Motorola Inc., announced today, should spark intense examination by incoming CEO Greg Brown into which markets the cell phone and communications equipment maker should focus on.

On the cell phone part of the company, which provides nearly two-thirds of Motorola's revenues (which totaled $43 billion in 2006), Brown needs to find a way to produce a steady supply of cell phones that are attractive to consumers and professionals, several analysts said in interviews today.

Zander grew far too dependent on the early success of the slim Razr phone, which quickly became a "one hit wonder," said Phillip Redman, an analyst at Gartner Inc.

On the enterprise side, Brown needs to better integrate products and services provided by its Symbol Technologies and Good Technology divisions, which were acquired under Zander's tenure, added Chris Silva, an analyst at Forrester Research Inc.

Some experts questioned whether Motorola might even be trying to sell products and services in too many technology areas to succeed. "Investors punish those who do too many things at once," noted Rich Smith, an analyst at The Motley Fool. He suggested Motorola might need to "cut bait on projects or spin off divisions."

After joining Motorola in January 2004, Zander, 60, was flying high as CEO into mid-2006 with the success of the Razr phone.

But the last year has been challenging. The company issued a lower earnings forecast in January, and at the end of October, it said profits would be off by 94% for the third quarter over the same period in 2006. Investor Carl Icahn appeared on the scene in the spring to critique Zander. Icahn also wanted a seat on Motorola's board, but lost in a proxy fight in May. In recent weeks, Icahn has urged Motorola to break itself up.

Redman said Zander didn't do himself any favors. In April, The Wall Street Journal made public a comment Zander often said: "I love my job; I hate my customers." The comment was reportedly first directed at the carriers that buy Motorola phones and were demanding lower prices, according to the article. But Redman said today that the comment has resonated since April.

"He disparaged his customer base and customers don't like to hear that," Redman said. "Zander had enough chances, and the company was not growing this last year. He was more of a salesman than a leader and not really a good salesman at that."

But Redman and other analysts said that Brown, 47, chief operating officer, might not do much better when he takes over Jan. 1 unless he can bring about significant changes.

"Brown doesn't have that much more experience than Zander did, and he's not an obviously better candidate," Smith said, noting that Brown needs to find a way to slow down Motorola's diversification. The company has its "fingers in too many pots," Smith said.

Redman said with cell phones, Motorola needs to find a way to innovate and to design better and more quickly. Nokia Corp., the top cell phone maker, brings in industrial designers to help create the look and feel of its phones, he said, and Motorola should try the same. (Samsung Electronics Co. took the No. 2 position behind Nokia at end of the third quarter, pushing Motorola into third place.)

"They need some of both of a Coco Chanel and a technology guru, and to be willing to go to outside designers," Redman said. It can take one to three years to conceive a phone and bring it to market, and Motorola needs to speed up the number of phones it has in the pipeline as well, he said. There are more than 7,000 software designers at Motorola, but the impression is that there are far fewer, he said.

The appearance of the iPhone in June only highlighted Motorola's problems with new handsets, analysts said. "They've been stuck in an innovation rut on phones," Silva said.

"Motorola has to have cutting-edge technology," added Jeff Kagan, an independent analyst in Atlanta. "Motorola has to partner with several of the newcomers with cutting edge phones." The cachet of the Razr has faded, and Motorola has to consider ways to create devices that can do "almost anything you can do on a computer."

Aside from concerns about cell phones, Silva said Motorola's enterprise mobility division, which brought in about $8 billion in revenue last year, could help Motorola's growth in the next four years. "Consumer [business] isn't where the biggest opportunity is," Silva said. "The enterprise business is likely to be big," he said.

He urged Motorola to flaunt its successes in government contracts and to find ways to refresh its commitment to corporate-focused phones that operate in dual-mode between Wi-Fi and cellular networks.

"Cellular phones are a fashion industry, and where Motorola can make money is in enterprise mobility and the stodgy infrastructure stuff," Silva added.

Contrary to other industry watchers, Ellen Daley, another Forrester analyst, gave Brown a positive review so far, noting that he was successful in guiding the Symbol acquisition. Brown might have been chosen because of his enterprise and network background, with the board perhaps recognizing that "Motorola's future may be [in] more than just devices."

Copyright © 2007 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon