Bloomberg: Motorola's Zander May Fail to Boost Profits With New Razr Phone

From a Bloomberg article today by Ville Heiskanen.

As you know, I've been reaching out to MOT shareholders since launching the "Plan B" campagin in July. MTB was one of several companies who I contacted who had divested their shares before I reached them. The 2nd last sentence below referring to Brad Williams is telling and shared among many in the institutional investor community: "Williams says he won't buy Motorola stock unless he sees a recovery, or a change in CEOs that signals revitalized design and marketing efforts."

Sept. 6 (Bloomberg) -- Motorola Inc.'s Razr 2 mobile phone, a new, more expensive version of its three-year-old best seller, may not be enough for Chief Executive Officer Ed Zander to revive profits.

Motorola, the biggest U.S. mobile-phone maker, began selling the $250 Razr 2 last month. While the new device has a bigger screen and more storage for songs, it lacks features such as the touch screen found in Apple Inc.'s iPhone.

The Razr 2, based on the handset that analysts say accounts for a third of Motorola's phone sales, will fail to win buyers because they can get the original for free with a service contract, said Brad Williams, who helps manage $13 billion as MTB Investment Advisors in Baltimore.

``You put it on the table next to the old Razr, and you don't really see what you're paying the extra $250 for,'' Williams said. ``You put an iPhone on the table, and everyone sees immediately it's an iPhone.'' MTB sold its stake in Motorola last quarter and holds Apple shares.

Zander, 60, may discuss early results for the Razr 2 tomorrow when he meets with analysts and investors in New York. Shareholders including Carl Icahn have called for the CEO to step down if sales and profit margins don't recover by year-end.

Sales Fall

Fading popularity of the original Razr contributed to a 19 percent drop in sales in the three months ended June 30 and Motorola's second straight quarterly loss. The company said when it reported the results that the unprofitable handset business would improve in the second half.
Spokeswoman Jennifer Erickson declined to say how many new Razrs Motorola expects to sell. The Schaumburg, Illinois-based company says it sold more than 100 million of the original units.
Motorola shares have declined 16 percent this year, while Cupertino, California-based Apple has soared 61 percent and world market leader Nokia Oyj added 57 percent. Motorola fell 1 cent to $17.19 on the New York Stock Exchange yesterday.

When the half-inch-thick Razr came out in 2004, it cost $499 with a service contract. Motorola started chopping the price when rivals such as Espoo, Finland-based Nokia caught up with the sleek design and won customers with new models.

Price cuts came too quickly and ``ruined'' the Razr brand, said Al Ries, chairman of Ries & Ries, an Atlanta-based marketing strategy firm.

``The Razr is cheap,'' said Ries, a co-author of ``The Origin of Brands.'' ``You can't make it expensive by calling it Razr 2.''

Low Volume

AT&T Inc., the biggest U.S. phone company, sells the Razr 2 for $300. Verizon Wireless and Sprint Nextel Corp. offer it for $250. Two millimeters thinner than the original, it sports a two-megapixel camera for higher-resolution photos.

``I just don't see it as being a high-volume model at this point,'' said Lawrence Harris, an analyst at Oppenheimer & Co. in New York who is ranked highest in accuracy among communications-equipment analysts by StarMine Corp. He has a ``neutral'' rating on Motorola stock.

The iPhone went on sale June 29 for as much as $599. It combined Apple's best-selling iPod music player with a Web- browsing phone. The iPhone's touch screen and lack of keyboard make the Razr 2 look dated already, MTB's Williams said.

Apple yesterday raised more hurdles for the Razr 2 by slicing the price of the top iPhone by $200 to $399.

Williams says he won't buy Motorola stock unless he sees a recovery, or a change in CEOs that signals revitalized design and marketing efforts. ``They need significant change in the product road map,'' he said. ``Zander is under a lot of pressure.''

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