Chicago Daily Herald: Motorola's Zander says it's time to resign

From the Nov. 30/07 Daily Herald:

Says transition was in the works for a while

By Anna Marie Kukec Daily Herald Staff

Ed Zander's resignation today as chief executive of beleaguered Motorola Inc. didn't surprise Wall Street. Indeed, he said he has been planning this transition for the last two years by grooming his successor, Chief Operating Officer Greg Brown.

"It's time," said Zander, during an interview. "When I got here, it was a big move for me coming from the West Coast more than four years ago. My wife and I did a lot of soul searching and I was in a place in my career that I wanted to just take a chance here in Chicago."

Zander, 60, said he started talking with the board two years ago about putting a succession plan into place. That was when Motorola's share price was in the $20 range, the highest he would see during his tenure. Zander then put Brown, now 47, on the fast track by promoting him to different leadership positions.

"We kept giving Greg every conceivable job that we could throw at him and asked him to help build up this enterprise," Zander said. "And he's done a great job."

Brown will replace Zander by Jan. 1 while Zander will continue as chairman of the board. Zander doesn't receive any severance package because he resigned. But he still is eligible for all stock options and restricted stocks that vest Jan. 5, 2009, which would have been his retirement date.
In addition, Zander will be an adviser to Brown until Jan. 5, 2009, and so will be paid his regular salary and benefits until then, Motorola spokesman Chuck Kaiser said.

Zander's total compensation package earlier this year was estimated around $13 million.
Despite the take-home pay, it's been a long haul for the West Coast tech veteran of 40 years, whose career includes stints as managing director of private equity fund Silver Lake Partners and president and chief operating officer of Sun Microsystems.

By February 2004, Zander shivered through his first winter in Chicago and skied in with Wall Street accolades on the coat-tails of the then new Razr phone. That world-changing handset was under production by former Motorola CEO and grandson of a co-founder Christopher Galvin, who retired under pressure.

Coincidentally, Motorola's share price when Zander took over was $18.45 with an adjusted close of $15.95 in February 2004. The price peaked in the $20-range from mid-2005 through late 2006. The stock closed up 32 cents to $15.97 today.

"Ed Zander's big mistake was thinking that the single success of the Razr phone was enough. It was not," said independent telecom analyst Jeff Kagan of Atlanta, Ga. "The Razr may have been hot, but Motorola needed to replace it with another hot phone. Instead they rode it up and rode it back down again."

During his tenure, Zander faced much of what Galvin faced: the No. 2-rated mobile phone maker began a downward spiral in global market share against stiff competition, profits dwindled, layoffs and closed plants continued.

This year, especially, was hard on Zander and the company when billionaire activist Carl Icahn sought in vain to win a seat on the board.

"I like Ed Zander personally; I never thought that he was the right man for the job at Motorola," Icahn said in a statement today. "Further, I believe that the steps announced today do not even begin to address the major problems at Motorola. In my opinion, Motorola should be split into separate companies: a mobile devices company; an enterprise mobility company; a connected home company; and a company focused on mobile networks infrastructure."

A Florida-based consultant began a campaign to unseat Zander just as he did to Yahoo's CEO Terry Semel.

"I'm ecstatic. It's a step in the right direction, but it's not the entire solution," said Eric Jackson, president of Jackson Leadership Systems Inc., a governance consulting firm in Naples, Fla. He offered the Motorola board a reorganization plan that called for Zander to leave.

"This was needed," Jackson said. "You can't change much without starting with the top.

While Zander is removing himself from day-to-day operations, he will continue to be active on the board.

"That's a way of saving face," Jackson said. "It's more of a symbolic role. Eighteen months from now, he may not be chairman anymore."

Zander said in the last six months or so, he was working more closely with Brown to make the transition. In July, Brown and Chief Financial Officer Thomas Meredith insisted during an interview with the Daily Herald that Zander would remain at the helm despite Wall Street rumors a successor was being sought.

"Ed and I have been working very closely, especially these last few months," Brown said during an interview today. "We have been focusing on reconfiguring this company and integrating a lot of talent. This is a special company and it still has great potential."

Brown said together they've changed about 50 percent of the leaders in the mobile devices business.

Said Jane Zweig, a wireless devices analyst with The Shosteck Group in Columbia, Md.: "Brown is an organization guy, a networks guy, but he's not a consumer electronics guy."

"You still need someone in there with a good strong background in devices. Stu Reed, who heads up the supply chair, would be possible," Zweig said. "But this still raises the question of what Motorola has coming down the pipeline. Will it turn people's heads like the Razr once did?"

There is no magic turn-around key for Motorola, so Brown has his work cut out for him, said Mark McKechnie, an analyst with American Technology Research.

"The good news is, Motorola is promoting from within again, which can provide some consistency," McKechnie said. "It's better than when they brought in Zander from the outside, which didn't work."

Despite the detractors, Zander has many friends in the industry, including Stephen Luczo, who knew Zander when he was at Seagate Technology in Scotts Valley, Calif., where Zander had served on the board.

"We're happy that Ed's coming home," said Luczo. "He's done a good job at Motorola and Brown is also an outstanding guy. It's a testament to Zander to be able to do such a smooth transition."

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The AP: Zander's Turbulent Ride at Motorola Ends

From Nov. 30/07's AP:

By DAVE CARPENTER – 1 hour ago

CHICAGO (AP) — Ed Zander is out as Motorola Inc.'s chief executive after a roller-coaster four years that saw him oversee the cell-phone maker's Razr-led resurgence but ultimately bear blame for strategic gaffes and product whiffs that led to its steep decline.

The company's announcement Friday that Zander is resigning as CEO and that President and Chief Operating Officer Greg Brown will succeed him Jan. 1 produced little surprise and a muted reaction on Wall Street. Industry experts voiced skepticism the change will produce a turnaround unless accompanied by a new wave of top-selling phones and other mobile devices.

Regardless, the departure will end a wild ride for Motorola under the fast-talking Brooklyn native, a former Sun Microsystems Inc. president who was widely praised for leading the slumping company's resurgence in 2004-05 and castigated for overseeing its slide since the second half of 2006.

The two-year run of success following the launch of the ultra-thin Razr phone began crumbling last year after sales slowed and the company admitted it had been trading profit margins for global market share by aggressively undercutting pricing.

In a little more than a year, the Schaumburg, Ill.-based company has endured the departure of high-level executives, a Carl Icahn-led proxy battle, a 40 percent drop in its stock price and a sharp decline in its global cell-phone market share to 13 percent from over 20 percent. It slipped from the No. 2 handset maker to No. 3 this year, behind not only Finland's Nokia Corp. but Samsung Electronics Co.

The 60-year-old Zander, who will stay on as chairman until the annual shareholders meeting in May, said the decision to go was his alone despite the severe criticism he received for the company's struggles and some calls for his ouster. He told The Associated Press that he had initiated talks with the board of directors about his succession months ago and said he had intended all along to stay only about four years.

"This is what I wanted to do," he said in a telephone interview.

"You'd like to leave when you're at the top of your game. ... You don't like to leave when you have a year like this with mobile devices," Zander said. "But I think we have enough structurally done with this company that when mobile devices does get back to its execution, we're a stronger company than we were four years ago."

Analysts, however, were dubious the board of directors would have given him the extension he needed to stay on as CEO after he reached the four-year mark at the end of December. He needed a strong company rebound to assure his standing with directors and shareholders, and progress in the third quarter was only modest.

Icahn, the billionaire financier who lost a bid in May for a board seat so he could force some changes, hailed Zander's resignation as a positive step but said Motorola should be split into four companies in order to get the most out of its potential.

"I believe that the steps announced today do not even begin to address the major problems at Motorola," he said in a statement.

Eric Jackson, a Naples, Fla., management consultant and Motorola shareholder who led an online campaign to fire Zander, applauded the departure.

"This is a company that is in need of new blood and new direction," he said.

The resignation left some observers wary about what it might signal about the turnaround effort in the cell-phone unit, which is bigger than Motorola's other, more successful divisions: home and networks mobility, its second largest, and enterprise mobility, which sells computing and communications equipment to businesses.

"While Mr. Zander's departure has been the source of speculation for some time, we had thought that an improvement in mobile devices could possibly grant him a stay," said Citigroup's Jim Suva in a research note. "We now wonder if today's announcement signals yet another disappointment for the handset segment and more meaningful changes that have to occur."

Brown, 47, joined the company in 2003 and had been groomed for the top job, serving as president and COO since March. Prior to joining Motorola, he was chairman and CEO of Micromuse Inc., a network management software company.

He was instrumental in Motorola's $3.9 billion acquisition this year of Symbol Technologies, a maker of barcode scanners and handheld computers, and its $1 billion divestiture of the automotive electronics business last year.

Asked whether he envisions a departure from the company's recent strategy, Brown said he would provide an update in early 2008 on the next steps planned.

"We've made a number of changes already," he told the AP. "We're focused on finishing the year and ensuring a smooth transition."

Analysts are looking less for a miracle from Brown than they are for some oomph from the company's 2008 handset models, which it is expected to unveil starting at the Consumer Electronics Show in Las Vegas in January.

"Motorola's problems extend behind its leader," Dave Novosel of the Gimme Credit bond research firm said in a note to investors. "The company sorely needs a refreshed product portfolio to capture the tastes of cell phone customers."

CIBC World Markets analyst Ittai Kidron called Brown a "solid operational manager" who isn't expected to bring drastic change, although other experts said another wholesale restructuring is possible.

Zander does not get severance because he resigned voluntarily, the company said. He will continue to serve as an adviser to the CEO through Jan. 5, 2009, and will receive his regular base salary and benefits until then.

Last year, he was paid $1.5 million in salary and $2.2 million in other compensation and was given stock or option awards worth $9.5 million.

Zander's stock options and restricted stock units also will continue to vest and be exercisable during that time.

Motorola shares rose 32 cents, or 2 percent, to $15.97 in Friday trading. The stock is down 22 percent in 2007 and 39 percent off its six-year high of $26.30 reached in October 2006.

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The Register: Moto says hello goodbye to Zander

From Nov. 30/07, The Register:

Not RAZR sharp

By Kelly Fiveash → More by this author

Published Friday 30th November 2007 15:37 GMT

Motorola boss Ed Zander has been ousted as CEO by the firm's board of directors.

Greg Brown, the firm's current president and chief operating officer, will step into Zander's shoes on 1 January.

Zander will retain his role as chairman until Motorola's annual stockholders' meeting in May 2008.

Motorola director Samuel C. Scott, speaking on behalf of the board, said in a statement that the decision to drop Zander and elect Brown as CEO was the "culmination of a thoughtful and disciplined process of succession planning".

Zander, who previously worked at Sun Microsystems for more than 15 years, was given the role of CEO at Motorola in January 2004.

Earlier this year, amid disappointing sales figures and a profit warning at the firm, rebel investor Eric Jackson had called for Zander's head. In July, Jackson ruffled some feathers on the board with the publication of a statement ominously entitled "Motorola Plan B". He said:

"What has he [Zander] brought to Motorola that is really unique in the last three and a half years? If it's difficult to answer that question, we find it hard to imagine what he'll bring moving forward, which is why we suggest a change is needed now."

Motorola has slashed around 7,500 jobs worldwide since January this year, as it attempts to push the mobile phone company back into profitability. ®

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A New Start for Motorola, Its Employees, and Its Shareholders

We welcome this morning's news of change at the top of Motorola. We thank Ed Zander for his work as CEO over the past four years and look forward to Greg Brown, the Board, and the rest of the SLT leading this great organization to new heights.

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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.

ZANDER: Yeah.

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

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AARP Bulletin: The Power of You

From the November 2007 AARP Bulletin:

The Power of You

Shareholder activism is increasing.The big issues are boards, company policy, CEO pay.

By Carole Fleck

November 2007

Americans own trillions of dollars in stock through pension funds, savings plans and as individual investments. And increasingly, they're using their clout to rein in corporate America, launching campaigns to dump a CEO, to change a company's unprofitable course or to go green. Retiree groups are among today's most active shareholders, confronting directors they consider overpaid and fighting for more generous health and pension benefits.

Shareholder activism has been on the rise ever since the Enron and MCI WorldCom scandals, when employees and shareholders lost hundreds of millions of dollars to fraud, says Amy Borrus, deputy director of the nonprofit Washington-based Council of Institutional Investors. "Directors realize they have to take note when shareholders raise concerns."

The increased activism is reflected in lawsuits, in legislative pressure on regulatory agencies and in the record number of shareholder resolutions submitted to American companies—more than 1,191 so far this year. Among the big issues are boardroom accountability, financial performance, executive compensation, labor practices, jobs, the environment and campaign contributions.

"The potential for activism by individual investors has never been greater," says Patrick McGurn, special counsel with the New York-based RiskMetrics Group. He says new media—including Internet blogs, group websites, YouTube and podcasts—have given investors a much bigger platform.

Stronger disclosure rules, particularly involving executive pay, have also prompted investor activism. The Securities and Exchange Commission has in recent years required companies to disclose information on executive compensation packages, the selection process for boards and how shareholders can participate in that process. But the SEC went in another direction earlier this year when it proposed a rule that would limit shareholders' rights to sponsor resolutions.

And in a case that is being closely watched by business groups, the U.S. Supreme Court is expected to rule on whether shareholders can hold third parties, like accounting or brokerage firms, accountable for fraudulently inflating a company's financial performance. AARP has filed a brief in the case urging the court to allow investors to sue.

Investor retirees have long challenged corporate behavior at telecommunications giant Verizon. C. William Jones, 69, president and executive director of the Association of BellTel Retirees, which includes Nynex, GTE, Verizon and Bell Atlantic, has been leading the fight to improve Verizon's pension and health benefits for employees and retirees. His group won three increases for retirees with minimum pensions starting in 2000.

His 100,000-member organization also fought to restrict executive compensation. According to Jones, it took as long as five years to persuade Verizon to pass, in 2003, the retiree group's proposal to reduce senior executives' retirement benefits, which were running five times higher than that of company managers. Jones, of Easton, Md., who with other retirees regularly attends annual shareholder meetings, produces a quarterly newsletter that keeps retirees informed of company practices and association activities.

"If the retirees and employees are asked to tighten their belt because of the health of the company, don't you think the top should lead by example?" says Jones.

When asked about shareholder activism, Verizon spokesman Bob Varettoni said in a written statement: "We've experienced consistent shareholder interest over time, mostly involving issues that impact many large companies such as ours."

General Electric retirees have also been successful in changing company policy through the shareholder process. Kevin Mahar, 64, president of the Local 201 IUE-CWA Retiree Association near Boston, which represents communications workers, including General Electric retirees, drummed up support from other retirees and, in 1996, won what he called the largest single increase in GE pension plan history. A second cost-of-living increase took place in 2000, he says, and a third will go into effect this year. GE employees and retirees, as a bloc, are the largest single holder of GE stock. Mahar has attended the last 12 GE shareholder meetings and says he used to take on then-CEO and fellow Irishman Jack Welch: "I used a little Irish humor, and he used it back at me."

James McRitchie, a former ethics officer at a California state agency who 12 years ago started an Internet site for shareholder activists, says many retiree groups and individuals use the Internet, including blogs and online videos, to boost shareholder involvement. What's important in any campaign, he says, "is to bring issues to the attention of other shareholders."

In a sign of what's to come for investor activism, consider Eric Jackson's grassroots campaign, which thrives on new media. The Naples, Fla., management consultant, who owned barely $2,000 worth of Yahoo stock, was frustrated that the Internet portal had great potential for growth but "was going nowhere."

So he started a blog questioning Yahoo's leadership team. Then he unleashed "call-to-action" videos on YouTube, a popular online site, decrying Yahoo's poor performance and urging investors to vote against the CEO and six other board members.

Disgruntled investors with stock worth a startling $50 million got onboard, says Jackson, who attended the annual shareholders meeting in June. Chief executive Terry Semel, who'd been criticized for receiving one of the largest compensation packages in corporate America (reportedly worth more than $70 million in 2006) and the board members were reelected, but by relatively narrow margins. One week later, Semel resigned. Observers credited Jackson's online campaign and its outpouring of investor support.

"That was a good outcome," says Jackson, 35. "It's going to be more and more likely that individual investors will follow this path. You can't just say, 'I'm just one person. I only own 96 shares, therefore, who's going to listen to me?' As long as you have an argument to make and you can build a coalition, you can have an effect."

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The Path Back for Moto

It's been a rough-go for Motorola in the last few weeks. After its last quarterly call in which it guided higher for the Fourth Quarter, the market has treated it harsher than the general market during the month of November. The stock has slipped. Some critics are suggesting it be dumped outright -- frustrated because of a lack of change in management. We don't think so - yet. This is a company which can still save itself -- although there's no quick fix here.

Our group has been pushing Motorola's board and management for changes since July. Earlier this month, we had the opportunity to speak for over an hour with Motorola's head of IR, Dean Lindroth. Mr. Lindroth and the Management team deserve credit for listening and engaging in dialogue with a group of investors (133 individuals owning 600,000 MOT shares) who are frustrated and want to share ideas for turning around this great company.

We certainly didn't agree on each point that we presented, but they deserve respect for listening. We intend to continue to speak out in a positive and constructive fashion on ideas for how this company can better unlock value.

Here is a summary of the views we shared with Motorola:

We believe, as I’m sure management and the board do, that Motorola belongs back in its industry leadership position.

Here are our suggestions on “opportunity areas” that – if you were to implement – we believe would be received warmly by the Street and by existing Motorola shareholders and employees.

1. Improving the Culture. Any time you do RIFs, there’s obviously going to be a blow to internal morale and fingers pointed at management. From the comments I’ve heard from Ed, Tom, and Greg on this, I think your opinion is that this will work itself out as the company’s financial results improve. While I agree this will help, there’s an opportunity here to further bolster the morale: Bob Galvin. I have been impressed with how highly Bob is still regarded by Motorola employees. There is still a deep appreciation for the values he instilled in the company. Although whenever a new leader comes in, there is a need for change, there is an enormous opportunity to remind people that the best aspects of Motorola’s old culture still exist. I am not saying Ed and the team need to recapture the Motorola of old. There were some parts of that (some would say) more paternalistic culture that don’t necessarily fit in today’s marketplace. However, there were some amazing and unique aspects of the old culture which employees should be reminded about. If Ed were to meet with Bob and perhaps invite Bob to an internal “town hall” type of meeting, I think there would be a great boost to the morale. This wouldn’t diminish Ed’s status as the leader, but strengthen it.

2. Further Clarify Strategy (Business, Corporate, Software, Acquisitions). “Seamless Mobility” is a catchy phrase. I think I understand what Motorola means by it and how it results in your core three businesses, etc. However, I’m not sure and I don’t think I’m alone here. It would be helpful for me – as a shareholder – and, I believe, to other analysts, institutional investors, and employees, if Ed could more clearly spell out what Motorola is building towards in the coming 3 – 5 years. How are you going to be unique compared to Nokia, Samsung, the iPhone, and Google? How do the three businesses all fit together? What are the criteria you use for new acquisitions? How will you win in software (see point below)? You don’t want to share your most intimate of strategic details with your competitors, but – in my opinion – you’ve been too private. By not speaking up more, there is a perception created that there is not a clear strategy being followed. That was ok when things were going well with RAZR, but you can’t skate by without more explanation these days. Another way of putting this is that you could win over so many more supporters with just more explanation as to where things are heading. Tom has done a great job of this within his area. He’s provided some clear metrics to measure his effectiveness on in 1 – 2 years from now. The Street loves this. We need the equivalent of this from the strategic perspective.

3. Winning in Software/Services. I think the most important hire you’ve made in the last 6 months is not Stu Reed to lead MDB but Alain Mutricy to head up software. Many of your competitors (most notably Nokia) have staked out software/services as a key area for battle in the next 5 years. Now Apple and Google are raising the stakes further. Motorola has always known the importance of software; hence the Good acquisition. However, there is still much work to do here. Streamlining onto fewer platforms and getting Linux/Java out the door is necessary but not sufficient for beating your rivals. The bar has really been raised by the companies mentioned above (even though I know Google is technically a MOT partner, just as Windows Mobile is a partner). We need a much stronger story to tell about what’s unique and exciting from a user-perspective about Motorola’s software. Otherwise, you’re a hardware vendor. Ed knows better than anyone that that’s not a market space you want to be relegated to. You need to say more than “stay tuned” on this issue. The Street wants to know how we’ll be different.

4. Further Strengthening the Board. I know Motorola and its directors take corporate governance issues very seriously. You have some very strong individuals on the board. However, we believe that – after a certain period of time on the board – one’s independence diminishes through no fault of a director’s own. Right now, the board at Countrywide is under-fire on this issue of director tenure length.[1] A decade is a fair length of time for any non-executive director serving on any company. We appreciate the years of service provided by Judy, Lewent, Nicolas Negroponte, Samuel Scott III, and Dr. John White, but we believe there is an opportunity to bring in some fresh eyes – as you have done recently with Anthony Vinciquerra of Fox and David Dorman. We think doing so would strengthen your standing on Wall Street (assuming you pick the right people). As with the point on Culture above, there’s an opportunity here for the Company to turn a perceived weakness into a strength. Instituting a required stock purchase amount by directors would also be appreciated by the Street and – according to research I’ve done – also result in even more meaningful participation by all Motorola directors.

[1] http://online.wsj.com/article/SB119404440821681023.html

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Goodbye, Moto

From yesterday's MSN Money:

Like the song says, "some say love it is a Razr that leaves your soul to bleed." Well my soul has bleed out waiting for Motorola's stock to turn around. I can't wait any longer -- I'm not Job after all.

Motorola has been screwing up for so long, it even gets it wrong when it gets it right. Last quarter the company delivered another lousy set of sales and earnings numbers, yet it guided fiscal fourth-quarter earnings to a range of 13 to 14 cents a share -- a few pennies above The Street's consensus. Normally, guiding estimates higher would be perceived as a good thing -- and it was at first as the stock edged higher on the news. However, in offering up hope for the fourth quarter and the upcoming year, CEO Ed Zander might have won himself a new contract -- and that's bad news.

You see one of the reasons I bought Motorola's stock down at its lows was in anticipation of a new management team. Typically when a struggling company finally ousts its old CEO in favor of someone new and full of promise, the underlying stock tends to rally. Until recently, Zander's ouster was all but certain. But in light of the company's modest progress off a terrible set of numbers, Zander might just hang around. Let's face it he did take all the credit for the Razr so there might be a board member or two who thinks he's on the verge of another one-hit wonder.
Now I don't know if the new CEO would be Motorola's own Greg Brown (current President and COO) or an outsider like former Qwest CEO Dick Notebaert and frankly I don't much care -- it's just at the point where anyone but Zander will do. Isn't there a young Galvin kid somewhere looking to reestablish the family name?

Without a change at the top, Motorola's stock will be stuck at the bottom. It was the one big catalyst we needed for the stock to make a run back into the low $20s. The Razr2 sure as heck isn't the answer to our turnaround prayers. Granted sales have been a little better than expected, but the price is still too high, the functionality is hit -or-miss and the design has lost its cool factor. And don't even get me started on the Q. Motorola's answer to the smart phone craze was put to shame by Apple's iPhone and Research-in-Motion's BlackBerry Pearl. Motorola can't give the phone away -- though it has tried hard, which helps to explain the company's declining margins.

So after waiting and waiting, I wait no more. Goodbye Moto.

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Financial Week: Boards on the Hot Seat

From Nov. 12/07 edition of Financial Week:

Nominating committees in the spotlight amid succession woes in corporate America; watch out for KB Home and Blockbuster

By Jeff Nash

November 12, 2007

Suddenly empty CEO seats at Merrill Lynch and Citigroup are turning up the pressure on boards to do a better job grooming talent from the corporate ranks.

For many companies, the difficult task of overseeing succession planning falls on the board's nominating and governance committee. Just as audit committees took the brunt of shareholder criticism following the Enron and WorldCom blowups, and compensation committees were on the firing line to comply with new Securities and Exchange Commission disclosure rules last year, nominating committees seem headed for the hot seat in 2008.

“Absolutely—the focus is shifting to the nominating committee,” said Richard Koppes, a lawyer at Jones Day and a director at Apria Healthcare Group and Valeant Pharmaceuticals International. “This is the committee that will have to reach out and engage with shareholders on some really tough issues in the coming year.”

Many boards admit they're struggling with succession planning. A study earlier this year by the National Association of Corporate Directors and Mercer Delta Consulting found that roughly half the directors surveyed from public, private and non-profit boards said their boards were “less than effective” at the task.

Such ineffectiveness can carry a high cost: CEOs recruited from the outside earned median pay of $13 million in 2005, compared with $5 million for those promoted from within, according to the Corporate Library, a governance research firm.

At Merrill Lynch, the price tag to replace former CEO E. Stanley O'Neal, whose exit pay was $161.5 million, will likely be much higher that that figure in the end.

“In the race for the CEO spot, often those executives who aren't elevated decide there's no future and leave for another company,” said Claudia Allen, chair of the corporate governance practice at law firm Neal Gerber & Eisenberg. “Some CEOs don't like a powerful No. 2 or No. 3 around and eliminate them. And then there are those companies that need to spend a lot more attention on bench strength.”

Along with succession planning, the nominating committee will have to spar with increasingly empowered shareholders on all things governance. According to governance research firm RiskMetrics, 656 shareholder proposals had appeared on 2007 corporate ballots through Sept. 15, up from 581 last year.

For example, the nominating committee at Axcelis Technologies will have to decide what to do after a shareholder proposal to repeal its classified board structure received 91.4% of the votes earlier this year, the highest support for a governance proposal this past proxy season. At KB Home, a proposal seeking a vote on golden parachute packages garnered 85.6% in favor. And at Blockbuster, 61.9% of shareholders voted in favor of eliminating the company's dual-class structure.

And now that a third of S&P 500 companies allow board nominations to be approved by simple majorities, a major challenge for nominating committees will be figuring out how to handle potential “no vote” campaigns, in which a shareholder asks other investors to vote against one or more directors.

While specifics vary from company to company, the general rule is that any director not receiving a majority of votes in favor of election should tender his or her resignation. The nominating committee then has to find a new candidate, shrink the board size or choose to disregard the resignation.

The New York Stock Exchange has even proposed leveling the playing field with Rule 452, which would bar brokers from voting shares held on behalf of investors, as brokers usually side with management and support its nominees. The SEC has yet to approve the rule, which was supposed to take effect Jan. 1, but will now not be considered until 2008.

“Boards will have a tough time justifying the continued service of a director who has been successfully targeted by such a campaign,” Mr. Koppes said.

Case in point: Many observers think the grass-roots campaign to oppose the re-election of seven of Yahoo's 10 directors—led by shareholder Eric Jackson, who owns just 96 shares—played a role in the board's removal of CEO Terry Semel in June.

Shareholders are also pushing for more access to the director nomination process.

While many directors oppose proxy access, Mr. Koppes said they should be proactive in gathering director nominee suggestions when meeting with key shareholders. A good dialogue between shareholders and the boards, he said, “goes a long way in making investors feel included and avoids confrontation. It's all about engagement.”

Perhaps the biggest challenge for the nominating and governance committee will be figuring out a way to meet with key shareholders to address their concerns. In the past, many directors argued that such meetings were solely the duty of management, but shareholders are increasingly demanding more direct contact with the board.

“Nominating committees will have to take the lead in reaching out to shareholders,” said Mr. Koppes. “Sure, you have to be careful about an individual director carrying out his or her own agenda, but this notion that only management represents the company no longer holds water. Shareholders' representatives are the board.”

Some companies may take the lead of Pfizer, whose board met with its largest institutional investors, representing 35% ownership of shares outstanding, in October. According to a company statement, the directors “participated in a listening role since their primary objective is to grasp what is on the minds of investors.” While Pfizer announced these meetings would be held regularly, company spokeswoman Shreya Prudlo said she couldn't comment on when the next one would take place. FW

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CIBC Analysts Forecast Flat Demand for Motorola's RAZR2

From Seeking Alpha:

By Mark McQueen

With various portfolio companies in the mobile business (Airborne, Bluestreak, Wmode in Fund III, Intrinsyc [ICS:TSX] in Fund II), we are keen to follow the trends in the space. Here is an honest look at Motorola’s (MOT) current state, courtesy of the U.S. technology analysts at CIBC World Markets:

Mixed Quarter

Based on our checks we believe Motorola is seeing some 4Q07 challenges. Lack of traction with the new RAZR2 is known, but our checks also reveal some component shortages. The shortages are impacting volumes and adding some delays in the launch of new products.

We believe the company is seeing component shortages in two areas – camera modules and batteries. These shortages are limiting MOT’s ability to show upside to unit shipments and as a result, we are slightly tweaking our shipments target down to 40.5 million from 41.0 million previously. We note that the demand in the handset market remains strong and other handset OEMs are seeing some component shortages as well.

RAZR2 demand remains mixed at best. Based on our checks the units shipped in 3Q07 have sold through, yet the targets for 4Q07 seem to be too high. We believe Motorola will lower the price of the RAZR2 to the mid-/high-$200 range in December. While a positive for unit volume, this is likely to limit Motorola’s ability to deliver ASP and margin upside in the near term.

On product introductions – we expect the majority of Motorola’s new models to be announced in 1H08, although we also expected some new models to be revealed in 4Q07. To a large extent, the company has nothing new to offer for the holiday season with the exception of the RAZR2, which is not meeting expectations.

A notable miss is the ROKR E8 (Elba), which we had an opportunity to see and play with. The candy bar phone which resembles the SLVR L7 has a touch pad for the keys. Based on the features used certain keys would light up while others would stay dark (a.k.a. Morphing Technology). For example, when the music player is turned on, the number keys would fade out while the music player key would light up. The handset also has a unique sensitive arch in the center of the phone which is used to scroll through menus by running the finger over it. The downsides are a small screen and no 3G functionality.

While demand for the RAZR2 is tricky, demand for the older handset platforms (RAZR and KRZR) remains solid and the company is sticking thus far to ASPs.

We don’t believe the strength in the older platforms is enough to keep overall ASPs flat or help
margins improve. We therefore, are lowering our estimates to the low-end of the company’s guidance.

Overall, the MOT turnaround story is unchanged – it will be a long and bumpy ride with more traction likely starting mid-2008 as the 3G portfolio gap narrows. Owning MOT requires patience – it will take time. We reiterate our SO rating and $23 price target.

More Changes to Leadership?

More changes to the leadership of the handset unit are transpiring, which suggests Motorola has yet to find the right folks to manage the business. We believe Motorola and its head of Worldwide Sales Ray Roman have parted ways. All regions are now required to report directly to Stu Reed. We also believe changes were made to the leadership of every region, after those regional allocations have been rearranged. While Motorola has talent internally, we have yet to see the company attract some outside talent, which we believe is required. This would add a fresh look, no association to any “camp” and put more pressure on internal leadership for positive change.

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The Best Interview with Jerry Yang since his Promotion

Yang insists he's the man to make Yahoo click

From today's Telegraph. 12:44am GMT 30/10/2007

Jerry Yang is already pacing the carpets of Duran Duran when I enter. He had the choice of any of the meeting rooms on the sixth floor that are named after 80s pop groups, but Duran Duran it is.

Other floors of the non-descript red-brick building on Shaftesbury Avenue that comprises Yahoo's UK headquarters are named after icons, music festivals and beaches, but the opportunity to speak to the company's new chief executive on Bondi Beach are denied me.

Such details, along with table tennis tables and bean bags, are the signs of the frivolity that once defined internet companies in the heady era of the late 1990s, but for Yahoo at least, the days of such levity are long gone. That would explain Yang's apparent eagerness to get started.

He's on a whistlestop tour of Europe to explain his new vision for Yahoo – a vision that, it has to be said, has been sorely lacking over the past few years. During a period in which Google has almost doubled to around $675 a share, Yahoo's share price has stagnated and remains below the $35 at which the stock started 2005.

Yang founded Yahoo as a college project 13 years ago but has only recently, after the resignation of Terry Semel, been recalled to take the helm. But he insists that it would be inaccurate to talk about "what went wrong" at Yahoo under Semel's stewardship.

"If you look at Yahoo over the past few years, we have been generating revenues north of $5bn and operating cash flow of over $1.9bn, so people shouldn't look at companies with that kind of profile and ask what went wrong. Yahoo today is a great consumer brand, one of the strongest brands on the internet."

But Yang is far from blind to the challenges ahead and is conscious of the criticism the company has faced in recent years. It has been attacked for being complacent, for failing to appreciate the changing face of the internet, and crucially, for failing to keep pace with arch-rival Google.

Yang appears slightly sensitive about the issue. "People probably overplayed Yahoo's position to be able to do something about that and underplayed how truly good Google is at taking a technology and building a business around it."

Nevertheless, that's the kind of success Yang must now try to emulate and he admits Yahoo has been slow to rise to the challenge in the past.

"Obviously, we feel we have not been able to capture all of what is going on in the internet marketplace. In search, we find ourselves doing OK, we are not thrilled with it but we are not out of it. One of our determinations has been, 'How do we get Yahoo back on the growth track?'
Consumers are starting to be more open in the way they choose their internet experience, whether it is through social networks or more user-driven activities and we want to be more exposed to that. We can be growing a lot faster than we currently are and do a lot better than we currently are."

After taking over as chief executive, Yang embarked on a 100-day strategic review to establish how to do exactly that and, now the review is over, he has highlighted three things. He wants Yahoo to become the internet starting point for consumers; to become the "must-buy" platform for advertisers; and to be the internet platform that attracts the most software developers.

In an acknowledgement of the famous "peanut butter" memo, in which one Yahoo executive accused the company of spreading itself too thinly, Yang admitted: "We have taken this idea that we can do two or three things well and not a thousand little things. It probably means we won't focus on a bunch of other stuff. We are in that process of identifying what makes it and what doesn't make it."

Yahoo has already signalled it is assessing its options for Kelkoo, its shopping comparison site, and it may stop creating much of its own content. But that has not been enough for some Yahoo watchers, who have accused Yang of merely tinkering at the edges and failing to address the real problems.

"People keep looking for big announcements," he smiles. "If that's what is required, we'll do it, but we are rational and logical about how we are doing it. This is not a one-day or one-week kind of thing. You have to look over the next two or three years and I think that is going to define a very different company.

"There is an amazing amount of work we have done already to move from a business that a year ago was primarily about generating a consumer experience and page views. We primarily sold it with our own sales team. Where we are headed is a still very strong consumer proposition but with a sales solution for not only our network but also a broader set of partners on and off our network and on mobile devices. There are still a bunch of places that we have to change and that is why we are emphasising that Yahoo is still in transformation."

And Yang is convinced that if he does it right, he can wean people off Google. "We have to find that core value proposition that we really feel consumers will come to Yahoo for. There are a lot more things we can do to improve that."

One of them, he says, is to improve the social networking element of Yahoo, but he has no regrets about failing to land a stake in Facebook, either last year, when Yahoo was said to be in talks with the business, or more recently, when Microsoft bought a stake for $240m.

"If you look at what Microsoft got, which looks like a little more than 1pc of the company and they get to sell advertising on Facebook, that obviously made sense to Microsoft, but..."

I suggest he doesn't think the Seattle software giant got a good deal, but Yang is diplomatic in his response. "It takes a buyer and a seller and once you make the deal you make the deal.

"We have a very good partner in Bebo which is probably one of the strongest social networks around. We understand a lot about what social inventory ought to do and how people are monetising it and hopefully we can be quick to take advantage of our knowledge."

Likewise, Yang is unwilling to talk about News Corp, with whom Yahoo was said to have discussed selling a stake in itself in return for MySpace earlier this summer. "I am not going to rule anything out. If there are the right deals or the right combinations of assets we would look at it, but my goal is to make Yahoo stronger and healthier."

As for Terry Semel, Yang still refers to him as his mentor, despite his departure as chief executive. "For him, it was a moment in time thing. He felt like he had got the transformation started but he also recognised that, in order to get it where we needed to go, it was quite a bit more execution and hands on, and that wasn't what he wanted to do in this phase of his life."

Now that Yang is back running the company he founded, he says he has brought a "sense of urgency" to the job.

"We have to make some pretty quick decisions," he says. "We have to potentially change the way we do business at Yahoo and change how we approach building our products. We need to keep trying and changing things until we get it right."

Yang concludes by insisting he is the right man to lead the turnaround. "I understand where the company has been; I understand the history; and I certainly hope I understand what the future is." Yang's fellow shareholders certainly hope so too.

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The Beat Goes on for Yahoo!

The response from the Street since Yahoo! pleasantly surprised with an upbeat quarter has been increasingly upbeat with each passing day.

The Microsoft investment in facebook make the Yahoo!'s valuation seem cheap by comparison. (Yahoo! actually surpassed Motorola in market cap a few days ago).

However, late afternoon trading in Yahoo! went stratospheric yesterday as investors considered its stake in Alibaba's upcoming IPO. Let's not forget who got Yahoo! into Alibaba in the first place a few years ago: Jerry Yang.

Sue Decker also looks prescient in buying $1 million in YHOO stock back in August near its low. Hopefully other execs and directors at the company will be emboldened to follow her lead.

It's great as a Yahoo! investor to follow this string of good news for a change. There is still lots of work to do, but congrats to the team.

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Chicago Daily Herald: Motorola investors, CEO see progress

By Anna Marie Kukec Daily Herald Staff

Published: 10/26/2007 12:14 AM

While the mobile phone business dragged down Motorola and it considers some changes between its Chicago and Libertyville operations, Chief Executive Ed Zander says he won't give up.

That upbeat attitude apparently paid off Thursday when, despite Motorola reporting a 94 percent drop in profit over the last quarter, its shares rose 75 cents, or 4 percent, to $19.30 in New York Stock Exchange composite trading, the largest gain since January.

"They're in between product cycles now and they're in a rebuilding mode, sort of like the Chicago Bears," said Mark McKechnie, an analyst with American Technology Research. "The real question down the road is how much earning power can they unlock? They have a long road to go."

Motorola's overall third-quarter profit slowed to $60 million, or 3 cents a share, compared to $968 million, or 39 cents a share, in the same quarter last year. Sales were $8.8 billion, compared to $10.6 billion the year before.

Still, while the mobile device business sales plunged 36 percent, the other businesses showed progress. Home & Networks Mobility was up 6 percent and Enterprise Mobility Solutions showed a 47 percent boost.

The company outlook for the fourth quarter said earnings per share from continuing operations would be 12 cents to 14 cents.

"We've made some progress toward stability," Zander said in an interview. "We did what we said we were going to do and actually the numbers in some areas."

So while the mobile devices unit hasn't had a hit cell phone in roughly three years after the Razr debuted, Zander said he aims to grow the company as in years past.

"After all, 49 percent of our company did very well," Zander said. "It's all about execution. We know that and we'll do that."

Zander said his top lieutenants are carrying out a turn-around strategy put in place earlier this year. This included cost-cutting and streamlining globally and the elimination of 7,500 jobs.

"Our work force plans are now complete," Motorola Chief Operating Officer Greg Brown said in an interview. "We're now focused on profitability. We know there's more work to be done."
Zander said he is eyeing more options with his downtown Chicago development center, which just expanded to a second floor.

"We'll continue to enrich Chicago and look at Libertyville and see what makes the best sense down the road," Zander said.

Libertyville is Motorola's base for its mobile devices business, which includes the development of cell phones.

Zander acknowledged this has been "an exceptionally tough year."

"We've seen some growth in other areas and we'll see more gains as we go along. We will continue to execute," Zander said. He praised his employees for undergoing a tremendous amount of pressure to produce winning products while maintaining large spending cuts.

Despite the heat this year, including power struggles with billionaire activist Carl Icahn and financial blogger Eric Jackson in bids to remove Zander, the chief executive plans to move the company ahead.

"It is looking like Zander congealed his support from the board and shareholders at least for the near term," said David Weissman, senior telecom analyst with Zacks Investment Research. "The recent shareholder letters and defeat of Carl Icahn's director initiative leads us to believe
Zander may have more time at the helm."

Zander said he likes where the company is heading.

"I like where we're at and how our engineering is being deployed," Zander said. "We're going to focus our marketing on where the opportunities are, including here in the U.S. There are plenty of opportunities here, too."

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AP: After a year of losses and lackluster launches, Motorola is relying on Razr2 and follow-ups

From today's AP:

CHICAGO: With a sleek design and an even sleeker advertising campaign, Motorola Inc. is banking on its new Razr2 cell phone to pump up anemic sales and provide a rosier future after a yearlong slump punctuated by back-to-back losses.

After a first half that may have put CEO Ed Zander's future employment into question, the end of Motorola's rough patch may be in sight.

"We indeed believe the worst is over," Citigroup analyst Jim Suva wrote in a research note last week.

But analysts say the cell phone maker needs a steady string of follow-ups to stay alive in an industry now dominated by products crammed with cutting edge features and software.

Consumers seem to agree: One group on the social networking site Facebook snarkily calls itself "My Motorola makes a better coaster than a phone."

Rival Samsung Electronics Co. overtook Motorola this summer to secure the No. 2 spot among cell phone manufacturers worldwide. Finland's Nokia Corp. remains the far-and-away leader. Some analysts say Motorola's market share has continued to erode and dropped back to 11 percent in the third quarter, from 22 percent last year.

Motorola has not had much luck on Wall Street either, where its stock has plunged 20 percent since last fall.

"If they have another miss this quarter, the pressure is going to be huge on the board to do something," said Eric Jackson, a Naples, Florida, shareholder who launched the grass roots initiative called "Plan B" that calls for Zander's resignation, among other changes. "You only get to say 'mea culpa' so many times."

Wall Street analysts expect earnings to hit 4 cents per share on revenue of $8.8 billion (€6.2 billion) when the Schaumburg, Illinois-based company reports third-quarter earnings Thursday.

Any third-quarter profit would be driven by Motorola's hand-held business devices and high-tech home entertainment gadgets: The company has said its cell phone unit will remain unprofitable until at least 2008.

This is the same company whose original Razr was the cell phone of choice just two years ago, nearly doubling the company's market share in 18 months. But the company's decision to dramatically slash prices in order to maintain market share sent the company's profits into a free fall in the absence of another slam-dunk phone in its portfolio.

Analysts surveyed by Thomson Financial expect annual revenue to fall 14 percent this year to $36.7 billion (€25.8 billion) and earnings per share to drop 84 percent to 19 cents.

"Our primary criticism of Motorola's execution over the past three years has been this lack of steady stream of follow-on products," Bill Choi, an analyst at Jeffries & Co., wrote in a research note.

The Razr2's prospects to succeed where phones like the Rizr and Rokr have fallen flat remain uncertain. Sales figures are not available, but Oppenheimer & Co. analyst Lawrence Harris told investors this week that Razr2 seems to be off to a slow start, lagging older Razr and Krazr models in the U.S. after two months on the market.

Experts say the company did not seem to learn from past mistakes in its cell phone unit. A decade ago, when Motorola did not plan a follow-up to its successful StarTac phone — one of the country's first popular flip phones — it found itself trailing competitors.

Motorola's struggles come as its rivals in the cell phone market are mostly thriving.

Nokia, buoyed by strong sales in India and China, nearly doubled its third-quarter earnings compared to last year. Apple Inc. has sold nearly 1.4 million iPhones since late June and predicts it will sell 10 million next year. And smart-phone rival Research in Motion Ltd., which makes the ubiquitous BlackBerry, has seen its stock price more than double this year.

Motorola executives say the cell phone unit is back on track after what Stu Reed, who replaced Ron Garriques this summer as its leader, called a "harsh lesson."

"The portfolio from now on you'll hear about is a wave, a drumbeat," Reed said during the annual meeting with analysts in September. "And it won't be a one-hit wonder, it'll be a multitude of products."

Motorola announced nine new handsets this month, including a holiday edition of the Razr2 with gold-plated accents and the Moto U9, a lightweight phone and music player that includes a camera and multiple messaging capabilities. Moto U9 is pegged for Asia, Latin America and Europe. Analysts expect more high-end products next year.

Motorola spokeswoman Julie Burda declined to comment.

The company also is beefing up other units and investing heavily in WiMax, a wireless technology that allows carriers to blanket large areas with service.

"Historically, they've proven that when they have down times, they've been able to come back," said Neil Strother, a wireless analyst for Jupiter Research. "I think they'll be back. I think they'll clean up what they can and still stay competitive."

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Breakout Performance Nominated for Best English Blog on The BOBs

Someone has nominated "Breakout Performance" for Best English Blog on the BOBs (Best of the Blogs).

We are currently running in 5th spot. Here's the info I've received on the competition:

I am pleased to announce that our users and jury members have nominated Breakout Performance as one of the best blogs in the world.

The Best of the Blogs Awards - The BOBs - is an annual blog competition sponsored by Deutsche Welle, Germany’s international broadcaster (think Germany's BBC). The BOBs consider sites from 10 different languages and is the biggest international blog competition in the world.

Your innovative use of the blog form to cover the business of the Internet has motivated our users and jury to nominate you for the Best Weblog English category.

I hope that you encourage your readers to vote for your innovative blog at thebobs.com.

Check out the rest of the nominations at www.thebobs.com.

If you wish to vote, here is the link to the site.

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WSJ: For Boards, Firing Or Keeping a CEO Can Be Tough Call

Great article from today's Journal:

By JOANN S. LUBLIN
October 22, 2007; Page B1

Citigroup Inc.'s directors stood by Chief Executive Charles Prince last week as the nation's largest bank reported a 57% drop in third-quarter earnings. But the expression of support did little to allay speculation abut Mr. Prince's future. The reason: Boards of directors of struggling companies typically trumpet their faith in the chief until the day they force him or her out.

Deciding whether to unseat a leader poses a dicey dilemma for directors. Wait too long, and they risk letting a bad situation get worse. Act too quickly, and they may short-circuit a potential recovery and create a demoralizing power vacuum.

"Nobody has mapped this process so well that they could give you a cheat sheet," says Paul Danos, dean of the business school at Dartmouth College in New Hampshire and a director of General Mills Inc. and BJ's Wholesale Club Inc. Frequently, Mr. Danos suggests, the decision comes down to "whether you have someone to replace him with."

More directors are struggling with the issue at a time of growing board authority, increasing investor impatience and shrinking CEO tenure. As at Citigroup, directors of Alcatel-Lucent and Motorola Inc. also recently backed CEOs Patricia Russo and Ed Zander, respectively, amid shareholder complaints. Earlier this month, Sprint Nextel Corp. CEO Gary Forsee resigned after his fellow board members launched a search for his successor.

And on Friday, a union group demanded the immediate departure of Countrywide Financial Corp.'s Angelo Mozilo. The founder of the biggest U.S. home-mortgage lender "cannot be trusted to steer Countrywide out of the morass into which he has led it," said William Patterson, executive director of CtW Investment Group, the investment arm of labor federation Change to Win. Its unions' pension funds own about 3.5 million Countrywide shares.

Mr. Mozilo couldn't be reached to comment. Countrywide didn't comment about the union group's letter, sent to the Countrywide board.

Even these days, directors often act reluctantly. Board members feel uncomfortable pushing aside a chief executive whom they chose and like, says Jeffrey Sonnenfeld, a senior associate dean at Yale University School of Management. " 'The devil we know is better than the unknown,' " many tell Mr. Sonnenfeld.

But directors tend to lose confidence and replace a chief executive when they see serious ethical lapses. Among other factors that can tip the balance are a pattern of business mistakes, concealment of critical information from the board and an extensive exodus of senior management. They are less likely to change leaders simply because a few institutional investors gripe about a depressed share price.

Sometimes, board members' faith is rewarded. General Motors Corp. CEO Rick Wagoner seemed endangered last year as GM sales fell, losses mounted and billionaire Kirk Kerkorian, holder of a big GM stake, agitated for big changes. Jerome York, Mr. Kerkorian's top representative, briefly joined GM's board and criticized Mr. Wagoner for moving too slowly to fix deep-seated problems such as high employee costs, declining car sales and overlapping brands.

But Mr. Kerkorian unloaded his entire stake late last year, and Mr. Wagoner remains in charge. GM said Thursday that third-quarter vehicle sales grew 4% despite continued declines in North America. GM also recently concluded a new labor agreement that will allow it to cut costs by billions of dollars and shift health-care expenses to a union-administered fund. GM's share price has nearly doubled since April 2006.

"The company is looking better," says Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware's business school and a director at AutoZone Inc. and HealthSouth Corp. "It's a classic example of where the board stuck by the CEO," he adds.
On the other hand, Mr. Elson says directors of Home Depot Inc. "should have moved earlier" to oust former CEO Bob Nardelli, who quit in January. Mr. Elson thinks Home Depot directors were slow to react to growing investor concerns about Mr. Nardelli's sizable pay package, his management style, the depressed share price and inroads by rival Lowe's Cos. "It will take a long time to reinvigorate the morale of their employees and get customers back," Mr. Elson says.

Frank Blake, the Home Depot executive who succeeded Mr. Nardelli, soon decided to shed the wholesale-supply business. But Home Depot got less than it initially expected for the unit because of the summer credit crunch. And since Mr. Blake took command, its shares have fallen
farther amid the housing downturn.

Home Depot directors insist they didn't wait too long to remove Mr. Nardelli. They promoted
Mr. Blake to vice chairman last fall, then discussed succession for months before concluding the company needed fresh leadership, one person close to the board recalls. "Not only did [the board] act in a timely fashion, but in an orderly and complete fashion," this person says.
Directors remain convinced Mr. Blake "is everything this board expected and desired in a leader," says Kenneth G. Langone, Home Depot's lead director. Mr. Nardelli declined to comment through a spokesman for Chrysler LLC, where he is now chief executive.

Activist investor Ralph Whitworth, who played a key role in events leading to Mr. Nardelli's departure, believes Sprint Nextel directors were also too patient. Signs emerged late last year that Sprint was losing ground -- even though it had paid $35 billion to buy a hot rival the year before. Millions of its cellphone subscribers had defected to competitors. Remaining customers were switching to less profitable calling plans.

Mr. Forsee "lost credibility with investors over a year ago," maintains Mr. Whitworth, whose Relational Investors LLC owns roughly 1.9% of Sprint's shares outstanding. "As soon as CEOs lose credibility, they should be out of there."

A Sprint spokeswoman has said the board decided to seek Mr. Forsee's successor because "it is the right time to put in place new leadership to move the company forward." Paul Saleh, the finance chief, will lead Sprint until the board completes its search. Through an acquaintance, Mr. Forsee declined to comment this past weekend.

Of course, many deposed CEOs think their boards forced them out too soon. Specialty retailer Sharper Image Corp. terminated Richard Thalheimer, its founder and chief executive, in September 2006 after two years of losses and a long sales slump. The move occurred the same month that directors formed a special panel to review stock-option grants, including those to Mr. Thalheimer, and said the company would restate financial results.

Mr. Thalheimer urged board members to postpone action until mid-2007. "I felt we were on a trend line that showed improvement," and the accounting discrepancies didn't involve fraud, he says. "But they disagreed with me."

The founder's ouster shocked long-time colleagues, hurting morale and productivity, recollects Craig Trabeaux, former executive vice president of retail operations. "It was a major distraction" for employees, who feared wider job losses and store closings, he says.

Steven A. Lightman, an outsider named Sharper Image's CEO last spring, has yet to revive the company's fortunes. The retailer recently reported a wider loss for the fiscal second quarter ended July 31. September same-store sales fell 21%. With no turnaround in sight, "it's easy to say [the termination] was premature," Mr. Thalheimer contends.

Jerry W. Levin, Sharper Image's chairman and former interim chief executive, says the board is "confident it made the correct decision" in removing Mr. Thalheimer. He also notes that the unanimous vote "included two long-tenured directors chosen by Richard Thalheimer." A turnaround specialist, Mr. Levin joined the board in July 2006 with support from a dissident shareholder group.

Directors chopped more than $3 million from Mr. Thalheimer's severance to offset his windfalls from favorably priced options, a December regulatory filing stated. The retailer later restated results for three fiscal years and the subsequent quarter ended April 30, 2006.

Write to Joann S. Lublin at joann.lublin@wsj.com

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Yahoo!'s Q3 Recap: No Light Really Shed on Overture Japan Sale

Congrats to Jerry Yang, Sue Decker, and Blake Jorgensen (and the rest of the Yahoo!s) for a good Q3 announced Tuesday. Yahoo! shareholders and employees alike finally feel some wind at their backs.

Yahoo! under-promised and over-delivered to the excitement of investors in the after-market which carried through Wednesday's trading. Smartly, management looks to continue this approach in Q4 by keeping their heads low and their guidance lower.

The disappointment amid the good news was net income dropping -- specifically in affiliate revenues and in international. This is troubling when the company stepped on the gas in hiring in the quarter. That's something that definitely needs to be addressed this quarter. Further streamlining the middle-upper management would be a wise place to start, as well as in cuts for Southern California.

I was hoping for greater clarity from Blake Jorgensen on the deal which closed in the quarter whereby Yahoo! sold a $395 million a year business (or at least its sales and marketing operations, if not the de facto business) in Overture Japan to Yahoo! Japan (of which they are a 34% JV partner) for $13 million -- a "very nominal" amount to quote Jorgensen's Q2 call comments.

Here were Blake's relevant comments from Tuesday's earnings call on this topic:

...[L]et me provide additional color on the impact of the Overture Japan transaction. We believe that by enabling the Yahoo! Japan sales team to present a unified offering to customers, this deal will be a significant positive to both parties in the long term. As we discussed last quarter, this transition will reduce our reported GAAP revenue and TAC in Q4 and into 2008, resulting in a modest net decrease in revenue ex-TAC.

Yahoo! Japan will pay us a service fee for providing search advertising and support services, and we expect this transaction to be slightly positive in OCF in the short term compared to our previous affiliate arrangement with Yahoo! Japan. As we mentioned in July, we received a small upfront payment and we believe that the majority of the value of this deal will be realized via our long-term relationship with Yahoo! Japan.

It's not clear to me how the transaction allows for a presentation of a more unified offering to Japanese customers than a joint sales call with someone from Yahoo! Japan and someone from Yahoo! (Overture Japan). At the end of the day, the customer was dealing with Yahoo! Japan, not Google or Microsoft, for a discussion of how they could be best served by Yahoo! Japan.

As there will a "modest net decrease in revenue ex-TAC" through at least 2008, why did Yahoo! do this deal? Jorgensen offers two reasons in his next paragraph:

1. Slightly positive OCF in the short-term, presumably through the new "service fee" paid by Yahoo! Japan to Yahoo! Yet, it's not clear how this new service fee operates and how "slightly positive" the impact on cash flow will be.

2. The assurance of a continued, longer-term relationship with Yahoo! Japan. The implication of this benefit is that the relationship conceivably could have ended. I suppose the doomsday scenario is that you would have been searching for sushi in Tokyo through Yahoo! Japan with results delivered to you by Ask's algorithm. It's hard to imagine that Yahoo! would have let itself get into such a weak negotiating position to allow that scenario.

Unfortunately, none of the Wall Street analysts chose to ask about this during the Q&A session following the prepared remarks. Therefore, Yahoo! shareholders are still left wanting a more complete explanation.

Henry Blodget was curious why international revenue growth in the quarter decelerated from 15% to 9%. Here is a hypothesis: a $395 million annual revenue business (Overture Japan) that was sold off on August 31st wasn't able to contribute $32.5 million to Yahoo!'s last month of Q3. With that extra $32.5 million, Yahoo!'s Q3 international revenue would have been $608.3 million -- or a 15% growth rate over the previous year's Q3.

On the one hand, that's some comfort to Yahoo! shareholders in guessing why the drop. However, it still doesn't help us better understand the rationale for the Overture Japan deal in the first place.

Let's hope we don't have to wait until shareholders can push aside the analysts to ask these questions for themselves at next year's Yahoo! Annual Meeting.

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64% Say Motorola Needs to Make a Move at the Top

64% of the 103 respondents to a poll on Breakout Performance feel that it's time for Motorola to make a change at the top.

Viewers were simply asked: "What Does Motorola Need to Do Now?" Not all respondents were necessarily supporters of our "Plan B" Campaign for Change at Motorola.

Here are the results:

1. Remove CEO Ed Zander 64%
2. Add Exciting New Products 48%
3. Outline a Company Strategy 44%
4. Boost the Company Morale 41%
5. Recast the Board 28%

We didn't include the option which Carl Icahn referenced last Friday which is that the company might be more valuable to shareholders broken up than in its current state.

Motorola will announce its Q3 earnings next Thursday.

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SJ Mercury News: Yahoo: A light at end of tunnel?

From yesterday's SJ Merc News:

ANALYSTS LOOKING FOR SIGNS YANG WILL CLOSE GAP WITH GOOGLE

By Elise AckermanMercury News

Article Launched: 10/17/2007 01:36:47 AM PDT

Is the long-awaited turnaround of Yahoo finally under way?

Investors are hopeful in the wake of Jerry Yang's first full quarter as chief executive. The Sunnyvale Internet giant solidly beat Wall Street's expectations Tuesday, reporting a 12 percent rise in revenue and an acceleration of growth.

The question is whether the company's respected co-founder can continue to build momentum. Less than a year ago, the sale of Yahoo seemed imminent, with a $50 billion bid from Microsoft reportedly on the table.

But despite an almost 5 percent drop in net income compared with a year ago, Yahoo's third-quarter performance has quieted calls for its breakup.

Yahoo said its net income for the quarter ended Sept. 30 was $151 million or 11 cents a share, compared with $159 million, or 11 cents a share for the same quarter last year. Quarterly revenue rose to $1.77 billion compared with $1.58 billion last year.

Analysts surveyed by Thomson Financial had expected earnings of $117 million, or 8 cents a share, on revenue of $1.24 billion.

"It was a big step in the right direction," said Gene Munster, an analyst with Piper Jaffray. Munster noted Yahoo also reported a 14 percent increase in visitors as well as a 20 percent jump in page views.

Investors have been anxiously waiting for an improvement in Yahoo's performance since mid-June, when Yang replaced Terry Semel as chief executive. Once an Internet superstar, Yahoo steadily lost ground to Google under Semel's stewardship.

In a conference call with analysts Tuesday, Yang laid out three priorities. He said he would make Yahoo the starting point for people using the Internet and a "must buy" for advertisers.
He also is hoping that Yahoo will become the platform of choice for third-party developers who will use the company's vast data stores to create useful applications.

Yang said a lot of the internal work he had done during the past three months - including streamlining Yahoo's organization structure and elevating executives such as Hilary Schneider, the new senior vice president of Marketplaces - would not be visible to outsiders.

"The Yahoo we envision today is very different from the Yahoo of one year ago," Yang said. But he cautioned that it will take several more years before Yahoo is fully on track.

Yahoo's quarterly revenues currently are less than half of those of Google and its profits amount to less than one-fifth of Google's earnings. According to Nielsen/NetRatings, Yahoo conducted 20 percent of all U.S. searches in August, compared with almost 54 percent for Google.

Yang vowed to turn those numbers around when he stepped in as CEO. Declaring there were "no sacred cows," he immediately launched a 100-day strategic review while reshuffling the roles of top executives. Meanwhile, analysts suggested the company embrace drastic measures.

Rob Sanderson of American Technology Research said in June that the easiest way for Yahoo to create shareholder value would be to abandon search technology efforts and become a Google affiliate - in other words, let Google sell ads on Yahoo's behalf.

Jeffrey Lindsay of BernsteinResearch agreed. Earlier this month, he calculated Yahoo could be
worth as much as $45 a share if the company outsourced its search function and fired a quarter of its employees.

Tuesday, both analysts relented on their criticism. Sanderson said investors should be encouraged by the prospect of a long-awaited turnaround, but he cautioned "there is still a long way to go to narrow the gap on Google."

Lindsay questioned whether Yahoo would be able to continue to make substantial improvements in its performance. "Expectations were extremely low," he said, noting that while other measures rose, Yahoo's profitability appeared to decline.

He also wondered why Yahoo executives did not substantially increase financial guidance for the rest of the year to reflect the recent improvements and the closure of major acquisitions such as BlueLithium, a digital marketing company with a fast-growing advertising network, and Zimbra, which makes software for Web-based e-mail.

Chief Financial Officer Blake Jorgensen said Yahoo was raising its guidance for the entire year by $130 million, placing annual revenues, excluding marketing costs, in the range of $4.89 billion to $5.02 billion and operating profits in the range of $1.88 billion to $1.95 billion.

Eric Jackson, a shareholder who led the revolt against Semel, said he appreciated that Yang had under-promised and over-delivered, but said he would like Yang to make some bolder moves.
Yahoo has shut down its U.S. auctions and combined two photo-sharing services, but Yang has yet to preside over any dramatic changes.

"I'm in favor of some big job cuts," Jackson said. "I would like to see them shut down the operations in Southern California. I don't think there is any reason why Yahoo media and Yahoo finance can't run out of Sunnyvale."

Contact Elise Ackerman at eackerman@mercurynews.com or (408) 271-3774.

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TheStreet.com: What Should Yahoo! Do?

Interview with Vishesh Kumar of theStreet.com from Monday...

Yahoo! investor Eric Jackson and Vishesh Kumar vet the company's options ahead of its third-quarter earnings results Tuesday.

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