Tuesday, November 27, 2007

Interview Revealing Ed Zander's State of Mind at the Time

Interviews with the press are often illuminating. Despite the best efforts of corporate PR folks, not every comment can be scripted. Eventually, all of us have to stand on our own feet and speak -- warts and all.

I received my monthly Portfolio issue last night and was disturbed (as a Motorola shareholder) by some of the comments contained within an interview the magazine's Kevin Maney did with Motorola CEO Ed Zander.

Ed Zander has had previous off-the-cuff remarks come back to haunt him before. Earlier this year, leading up to the May Annual Meeting, at which Carl Icahn fought for a board seat, a Wall Street Journal article quoted Zander as having previously said in an internal meeting that he loved his job but hated his customers. Icahn later called the remark something "straight out of 'Alice in Wonderland.'"

Fortunately for Zander, there's no damning comment like that in this latest interview. However, there are several odd remarks which are worth noting. Ladies and gentlemen of the Motorola shareholder jury, these comments speak to the defendent's state of mind at the time he was (and still is to this day) running Motorola.

The video interview is here. The full printed interview is here. Excerpts are below with my comments.

CondeNastPortfolio: What went wrong for Motorola this year?

Zander: There was a disruptive technology called 3G. We underestimated when it would hit—thought we had another year—and we were late rolling out our products that use it. But in this business, you have to get the devices out across the world and in all price points. That's what were doing right now.

[Jackson: Underestimating 3G harkens back to Motorola's being late to digital from analog back in the 90s. Interestingly, 3 current Motorola directors were on Motorla's board then too. One of the arguments for keeping a director on the board longer than a decade would have to be that their institutional memory gives a valuable perspective to the board so that "newbie" directors and management don't make similar mistakes to the past. It would have been nice for Motorola shareholders if that had happened here.]

CNP: The stock price falls, and you have one of those classic nightmare moments: Your assistant walks into your office and says, "Carl Icahn's on line 1."

ZANDER: [Smiles] He wasn't on line 1. He was on my cell phone.

CNP: What did you talk about?

ZANDER: I don't want to go into that. I'll just say that last December we realized the products we had weren't what customers wanted, so we had to cut prices. And that was a big hole in our January earnings announcement. At the end of the month, I got a phone call from Mr. Icahn. It was surreal.

CNP: What did he say?

ZANDER: Keep in mind, at that time I had a great balance sheet. When I got to Motorola in 2004, we had so much debt that we had a hard time making our payments. So we worked real hard to get a really strong balance sheet. Icahn's team felt that money should be redistributed to the shareholders in order to get the stock up again. We didn't think so. And we had a lot of pleasant meetings.

[Jackson: "I had a great balance sheet"? The use of the word "I" is very interesting. In a company with as many employees (and executives on the Senior Leadership Team), no "I" does anything. It's concerning that he would see things in this way.]

CNP: Speaking of that, when you came in at Motorola, you went around visiting customers and got slammed.

ZANDER: That's a nice word for it. They pounded me for Motorola's poor quality, missed deliveries, whatever. So we made customer satisfaction part of our executive team's bonuses.

[Jackson: Translation... This company was a basket-case before I arrived. I had to fix these sorry guys up.]

CNP: At the Consumer Electronics Show, in January, you showed me a little card stating Motorola's corporate values and mentioned a big internal fight over the wording.

ZANDER: The line we fought over is "We're here to win." In Silicon Valley—I don't care if you're in last place—you think about winning every day. That line was too aggressive for some people at Motorola, but we're now No. 1 in set-top boxes for cable TV. We're No. 1 in government and public-safety radio communications.

[Jackson: The reference to the good old days back in "Silicon Valley" won't win many fans in Schaumberg or Naperville.]

CNP: What's the next Razr?

ZANDER: The Razr was like hitting a grand slam, and you can't hit a grand slam every time. You win baseball games with lots of singles and doubles, good fielding, good pitching. In the global device business, if you want to be successful, you have to be maniacally boring.

CNP: What do you mean?

ZANDER: It's about having lots of products come out on time. It's the supply chain. It's the cost structure.

[Jackson: 100% agree with everything Zander said in the last 2 comments. However, he and the rest of the SLT (including Meredith and Reed) use the term "maniacal" and "drumbeat" and "wave upon wave" way too much. We get it. However, this answer to "what's the next RAZR question has changed from 2006. Here's what the Wall Street Journal reported earlier this year: "A lot of you are always asking what is after the Razr," Mr. Zander said in an April 2006 conference call after another quarter of 30%-plus growth. "I say more Razrs."]

CNP: You've taken some hits recently for not buying Navteq. It's in your backyard; former Motorola C.E.O. Chris Galvin is the chairman...

ZANDER: I didn't know that about Chris Galvin.

[Jackson: Seriously? If not, why not? If you did, why would you say you didn't?]

CNP: He didn't call you up and say, "Ed, you should buy this company"?

ZANDER: No. But even if he had, Navteq has nothing to do with us. We're not in the applications business. You've got to pick what side you want to be on. Our goal is to provide the best platform for developers to create applications.

[Jackson: It's too bad Galvin didn't - could have been good for MOT and Navteq. As I've said elsewhere, I respectfully believe that Motorola desperately needs to be in the applications (some might call it services) business. If they don't, others -- like Google -- will take that piece of the value chain and Motorola will relegate itself to being a plastic shell hardware provider. The iPhone is apps plus form factor; it's not just a touch-screen. Nokia believes they needs to be in the apps business. Motorola thinks they'll win over services providers (phone companies) by not competing against them like some perceive Nokia to be doing. At the end of the day, the most valuable aspect of this value chain is in apps and Motorola has the special and unique advantage (over a Google) to combine form factor with apps.]

CNP: The price for Navteq was stunning: Nokia paid more than $8 billion.

ZANDER: God bless them, but that's just crazy.

[Jackson: We'll see. Anyway, it's a moot point, as Motorola couldn't have afforded to outbid for this. Therefore, blame your competitor for paying too much foolishly (see Google after the Microsoft investment in Facebook).]

CNP: Do you wish Motorola had the iPhone?

ZANDER: I have nothing but respect for Apple, but we did touchscreens with handwriting recognition in China three years ago. We, as an industry, tried touchscreens in the U.S. several years ago, and it didn't work. A lot of Americans don't like them.

[Jackson: If you believe the iPhone is just about having a touchscreen, I have a problem with that. Again, we'll see on the prediction. I would say the early returns don't support his view.]

CNP: What device do you use?

ZANDER: A Moto Q when I'm working. When I go out at night, I may have a Razr2. Eventually, you'll have one SIM card for your mobile devices, and when you plug that card in, it will recognize the device and shut off all your other devices. I think many of our customers will buy multiple devices, depending on the applications they want, and they'll have one phone number that works for all of them.

[Jackson: With the exception of some of my engineering friends, I don't see mass popping of SIM cards into and out of mutliple devices on a large-scale in the near future.]

CNP: Or so you hope.


[Jackson: Yeah. Motorola shareholders hope so too.]

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