Tuesday, October 30, 2007

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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Saturday, October 27, 2007

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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Wednesday, October 24, 2007

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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Tuesday, October 23, 2007

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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Monday, October 22, 2007

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

Great article from today's Journal:

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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Thursday, October 18, 2007

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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Wednesday, October 17, 2007

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

From yesterday's SJ Merc News:


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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Tuesday, October 16, 2007

Interview with Vishesh Kumar, TheStreet.com

I stopped by TheStreet.com today to meet with Vishesh Kumar and chat about Yahoo! At the end of interview, I decided to pull out my camera and interview him....

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Monday, October 15, 2007

Icahn hints at Motorola challenge: Financial Times

LONDON (MarketWatch) -- Carl Icahn, the U.S. activist investor, has signaled the possible launch of a new campaign against Motorola Inc. if performance at the telecommunications equipment maker does not improve, reports the Financial Times Monday.
In an interview with the newspaper, Icahn said: "There is value there, and if that value doesn't manifest itself I, as an activist, would think very seriously about coming back."

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Thursday, October 11, 2007

Flipping a Question to Yahoo! Management from Quadra Island, BC

Just in time for next week's Q3 Earnings Call, I wanted to pose a question - as a shareholder - to Jerry Yang, Sue Decker, and Blake Jorgensen. This one comes from the dock on beautiful Quadra Island, BC, at sunrise.

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Saturday, October 06, 2007

Follow-Up on Yahoo! Japan Deal for Overture Japan

In posts earlier this week, I questioned why Yahoo! had sold Overture Japan to Yahoo! Japan for $13 million when that business was doing $395 in annual revenues.

One of the rationales for the deal, explained by Blake Jorgensen on the last earnings call, was that there would be better alignment of the sales teams by combining them.

One of the questions I raised was why -- when Yahoo! Japan and Overture Japan are in the same Minato City neighborhood in Tokyo. Yahoo! Japan office is in Roppongi Hills Mori Tower, 10-1, Roppongi 6-chome, Minato-ku, Tokyo and Overture Japan's office is in 4-3-1, Toranomon, Minato-ku, Tokyo.

A colleague of mine in Tokyo confirmed the proximity of these offices:

"Roppongi and Toranomon are very close. It will take 6 minutes train and 3 to 8 minutes walk."

So, this move would be the equivalent of taking one team located in, say, Santa Clara and aligning them with another team in Sunnyvale. That would make sense if Yahoo! didn't already have expertise in working with teams spread around the state (between Burbank/Santa Monica and Sunnyvale), as well as around the world.

The point is that there must be something else much more significant behind doing this deal for Overture Japan now at this price. Shareholder will be looking for greater clarity on the next call in about a week.

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Friday, October 05, 2007

1440 Wall Street: Yahoo Gets Free Advice

From 1440 Wall Street:

Sanford Bernstein is raising a ruckus in the shares of Yahoo! today, calling on management to break up or sell the company. They think the sum of the parts come to at least $39 a share.

And they are not the only folks agitating for change. Eric Jackson at Breakout Performance continues to harangue management, and wants anti-takeover provisions removed. That might be harder to do than getting rid of Terry Semel was.

But not all news is bad in Sunnyvale. Compete.com is noting that while Google is the King of Search, Yahoo! might be the King of Fulfillment: As I noted a few weeks ago, Google gets about 2/3rds of the web search volume. So from this perspective Google appears to dominate and have the most successful search engine. If volume is an indication of effectiveness, one might be ready to crown Google the best search engine. However, if we look at the numbers from a “search fulfillment” perspective by engine we get a very different story.

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CNBC: Future of Yahoo!

A Wall Street analyst says the sum of Yahoo's parts may be greater than the whole, with Jim Goldman, CNBC; David Garrity, Dinosaur Securities director of research; and Eric Jackson, Jackson Leadership Systems CEO.

Here's the interview from CNBC earlier this afternoon.

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Thursday, October 04, 2007

Motorola tries to get bad news behind it

Motorola Inc. expects to record a total pretax charge of $122 million in the third quarter from restructuring actions, the telecommunications-equipment company said. Of the charge, $83 million is for severance costs for 1,000 employees, according to a Securities and Exchange Commission filing. Most of the affected employees are in Germany. The $39 million is for fixed-asset impairments, Motorola said. The $122 million charge is in addition to the $221 million in charges the Schaumburg, Ill., company took in the first half, representing severance costs for about 4,100 employees.

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Tuesday, October 02, 2007

More Questions on "Sale" of Overture Japan KK to Yahoo! Japan

Last week, I published a post (in response to a suggestion from a Yahoo! "Plan B" supporter) focusing on the recent sale of Overture Japan KK by Yahoo! to Yahoo! Japan. I complained that the sale price of just over $13 million was way too low for a company that did $395 million last year.

I was contacted by Yahoo!'s Investor Relations (IR) team the next day. I signed an earlier NDA with Yahoo! (due to previous discussions I've had with them this year) which prevents me from disclosing information they reveal to me which isn't public. Therefore, I want to respect that, but I did speak with them yesterday and had an opportunity to further press my case that they share more information to shareholders. They attempted to better explain the deal to me. Obviously, they believe this is a good deal for shareholders and they made their case for it. However, I -- and shareholders -- need more information from the company before coming to a conclusion.

So I call upon Yahoo! to share more information on this deal publicly -- even before the Q3 earnings call -- so that all shareholders can review it. The way this transaction has happened -- with only a release to date from Yahoo! Japan and no public comment from Yahoo! since then -- creates questions in the minds of shareholders that Yahoo! shouldn't allow to linger.

There was nothing in Yahoo!'s last 10-Q on the Overture Japan sale because the deal hadn't closed yet. The only public comments to date on this subject came from Blake Jorgensen during the last earning call. Here is a summary of those comments:

Let me spend a moment on our pending deal with Yahoo! Japan. We've been working towards transferring ownership of the sales operations of Overture KK in Japan to Yahoo! Japan. We're excited about this transaction because it should allow us better alignment of search and display advertising sales in Japan, making the business more competitive and essentially securing a favorable and very long-term revenue stream to Yahoo!.

The terms are not yet final, but once the deal closes, you will see several changes in our financial statements. We will no longer pay TAC to Yahoo! Japan and they will instead pay us a service fee, which we expect will be included in our marketing services revenue. As a result of the transaction, our GAAP revenue is expected to be between $200 million and $250 million lower in the back half of 2007 and TAC will come down commensurately.

Revenue ex-TAC will decrease modestly under the new structure as the new service fees will largely offset the lost affiliate revenue. The impact to operating cash flow is expected to be broadly neutral near term, but accretive for both companies long term, versus our prior arrangement. The transaction is structured to deliver value through a long-term service fee arrangement with only a very nominal upfront payment to us.

So, given only these details of the transaction (which are here), my questions as a Yahoo! shareholder to Blake are as follows:

  • Why did Yahoo! do this deal in the first place? How are Yahoo! shareholders better off today versus prior to August 31st (when the deal was announced)? Better "alignment" sounds great, but why can't you get people aligned when they work in very close proximity in the same Tokyo neighborhood? Yahoo! Japan office is in Roppongi Hills Mori Tower, 10-1, Roppongi 6-chome, Minato-ku, Tokyo and Overture Japan's office is in 4-3-1, Toranomon, Minato-ku, Tokyo (in other words, the same Minato neighborhood). Beyond alignment, and given that Yahoo! received the "very nominal" $13 million for Overture Japan and that Yahoo!'s go-forward "revenue ex-TAC will decrease under this new structure," why do this deal? How are Yahoo! shareholders better off?
  • Was Yahoo! at Risk of Losing the Paid Search Business for Yahoo! Japan? The only reason I can imagine for doing this deal from the Yahoo! perspective is the risk that they might lose the "favorable and very long-term" business from Yahoo! Japan. However, if that's true, how could Yahoo! have let itself get into that position in the first place? It seems inconceivable that Yahoo! -- when it was first negotiating an agreement with Softbank 10 years ago to set up Yahoo! Japan -- would allow Softbank (or Yahoo! Japan) to turf out Yahoo! in the future in favor of using a competitor for some services. In Yahoo!'s defense, the company didn't compete with Google 10 years ago and didn't have any idea that paid search would be as big an area as it is. Perhaps it is possible that Yahoo! Japan had this "out card" and decided to play hardball with Yahoo! If this is true, it raises questions about how Overture Japan's relationship was set up in the first place with Yahoo! Japan after Yahoo! acquired Overture in 2003.
  • Is there a difference between "transferring ownership of the sales operation of Overture Japan KK to Yahoo! Japan" and selling Overture Japan KK to Yahoo! Japan for US$13 million? Blake's language specifically doesn't state that this is a sale. However, if Yahoo! has transferred ownership of the sales operation to Yahoo! Japan, what's left of Overture Japan KK? Isn't this a de facto sale? If it is a sale, how does Yahoo! justify this "very nominal" sales price of $13 million for a $395 million a year business?
  • How does this deal in and of itself create more cash-flow for Yahoo! and Yahoo! Japan in the long-term? The language above from Blake implies that Yahoo!'s near-term revenue ex-TAC will take a hit, although cash flow will be "broadly neutral." Yet, both companies are supposed to see the deal be long-term accretive for cash flow. This deal appears to be about moving around how revenue, costs, and marketing service fees are reported from an accounting perspective, but I haven't yet seen such a deal between two JV partners which in and of itself made more money (or cash flow) to be shared between the partners than what existed before the deal. If this is the case here, how does the deal create more cash flow for both long-term?
  • How are Revenue and TAC calculated between Yahoo! and Yahoo! Japan? As of March 31st, 2007, Yahoo! Japan had a trailing 6 months of revenue of $945 million (or about $1.9 billion annualized). Yahoo! recognizes 34% of this revenue itself on a trailing basis (as per its ownership stake in Yahoo! Japan) -- or $642 million of the annualized amount. That's roughly 10% of Yahoo!'s overall annual revenues. Yahoo! Japan reports TAC of about 28% of its revenues of $529 million of the earlier annualized amount. More light needs to be shed on how these two companies calculate revenues and costs both ways through their JV and what is changing under this new agreement. Blake's comments suggest that Yahoo!'s revenues ex-TAC will decrease from this deal, but that Yahoo! Japan will increase its service fees to Yahoo! He also says that affiliate revenue to Yahoo! will decrease. Can we get some more details on how all of this will actually play out? Is Yahoo! Japan -- in addition to sharing 34% of its revenues with Yahoo! -- also paying Yahoo! a fee for use of Overture Japan, which is additional revenue to Yahoo!? If so, how significant is this to Yahoo!? Is this the revenue that will now become the "service fee" under this new agreement reported as "marketing services revenue" by Yahoo!? Until we really understand what is happening under the terms of the deal, it's difficult for a Yahoo! shareholder to judge the benefits or negatives of the deal.

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Monday, October 01, 2007

Yahoo! and Motorola "Plan B" Investment Update

Back in January, I began a campaign against Yahoo!'s current management team and board. I was unhappy with the current direction of the company under then-CEO Terry Semel. With the help of input from many Yahoo! investors, we finalized a "Plan B" for the company, which was sent to General Counsel, Mike Callahan, in February. We met with the company in April, ran an "against" vote campaign directed at 7 of 10 directors leading up to the annual meeting in June (at which we spoke out against more aggressive changes at the company), and have continued to communicate our points to management.

Here is a quick update of the points in the plan and what has happened over the last 9 months. We are not "claiming credit" for these changes. The press has well-documented our involvement on behalf of shareholders earlier in the year. We are simply updating supporters on what we asked for and what has happened since (and we are not including our original arguments supporting each point, but refer here if interested):

1.Terry Semel should be immediately replaced as Yahoo!’s Chairman and CEO

  • Positive Result: Semel resigned on 6/18 six days after the Annual Meeting at which 35% of votes went against 3 of the directors and each other additional director received considerable "against" votes. These were historically high "against" votes laid at the feet at all directors. Yahoo! still hasn't really responded to this, except with Semel's departure. They also dragged their feet on releasing the data to shareholders until one of the last days possible by law, as part of their 10-Q, instead of making the data available within a day of the vote (because of most certainly the firestorm it would have caused in the press and with shareholders).

2. Terry Semel, Robert Kotick, Roy Bostock, Ron Burkle, Eric Hippeau, Arthur Kern and Gary Wilson should be immediately replaced on Yahoo!’s Board of Directors

  • No change: All still on board; one new director (Maggie Wilderotter) added on 7/27 -- and one our group supports. The company appears to believe that Semel's move upstairs to Chair alone is sufficient to placate shareholder ire expressed in the June 12th vote.

3. Shutter the (original content aspects of) Yahoo! Media Group and campus in Los Angeles

  • Positive Result: Rumors (according to TechCrunch and PaidContent) of internally announced shutting down of “premium services” in favor of free services and cutting jobs in Los Angeles on 9/27; a step in the right direction but not as aggressive as we would have liked.

4. Make additional R&D Investments in the Technology Group

  • Positive Result: David Filo (co-founder) now at least acting CTO; hopefully, Filo's continued involvement will ensure this group gets adequate investment moving forward.

5. Reduce overlapping internal divisions within the Company

  • Positive Results: Killed Webjay, Yahoo! Auctions and combined Yahoo! Photos with Flickr in May; Killed Yahoo! Bill Pay on 7/6; Killed Yahoo! Podcasts on 9/26

6. Institute a “pay-for-performance” plan for all Yahoo! Management

  • Positive Result: No policy change but Sue Decker bought $1 million in stock on 8/4 and 8/5. Would be nice if she and others on the management team and board would buy even more (or some, in some cases).

7. Step up the pace of the $3 billion stock repurchase plan announced in October 2006

  • Positive Result: Company announced that it had done this on Q107 Analysts Call (4/17)

8. Begin a modest cash dividend immediately

  • No change

9. Remove anti-takeover provisions which are not shareholder-friendly

  • No change
We stand by our original plan and call on the company to continue to take steps that are in line with the points laid out above.

So: have we made any money on our investment? Yes, but we've lagged the market.

As of today, our group consists of about 100 supporters owning 2.1 million shares worth $55 million. Yahoo! has returned 6.81% (or 9.24% on an IRR-basis) since I took my position on 1/5/07 compared to 9.61% for the S&P 500. (Other supporters of our "Plan B" obviously have their own entry points for their YHOO investment.) Not great -- however, it's staged a significant comback in the last 6 weeks, amidst a general sense that expectations are so low that it has nowhere to go but up.

The best news I've heard since being a YHOO shareholder came out of last Friday's town hall meeting (as reported by Kara Swisher). No more Tom Cruise visits on First Avenue. This time Steve Jobs was brought in by Jerry Yang. I could care less about the motivational speaker du jour though (although can you think of a better choice for this company at this time?); I was much more relieved to hear that there appears to actually be hope and even belief from company employees that they can succeed.

I still have several criticisms with the management team and board of this company -- which I won't be shy to air, as I did last week -- but I wouldn't be a shareholder in the company if they didn't have a huge upside. But Kara's review offers shareholders a glimmer of hope that the company's leadership and employees are starting to see that Yahoo!'s destiny is in their hands -- instead of thinking that things will come around of their own accord to put the company back on top.

We said we are long-term holders of stock in the company and we still believe that.

Our Motorola "Plan B" campaign -- launched on July 9th -- has been more successful than Yahoo! in some ways and less so in others.

Today, we have 132 supporters owning 600,000 shares in MOT worth just under $12 million. After putting together a good last week of trading sessions (based on analyst upgrades of the industry and Samsung shortages predicting increased demand for Motorola's products), our MOT investment has returned 5.22% since July 9th (or an IRR of 22.44%) compared to 0.95% for the S&P 500 over that same time period.

That's the good news.

Unfortunately, Douglas Warner III and Motorola's other independent directors have refused to meet with our group to discuss our "Plan B" for Motorola. As a result, much of the plan remains unfulfilled.

Here is a recap of what we asked for and what they've done (or haven't done):

1. Ed Zander Must Leave Immediately as CEO and Chairman
  • No Change

2. Replace Judy Lewent, Nicolas Negroponte, Samuel Scott III, and Dr. John White on the Motorola Board of Directors

  • No Change; in fact, they added 2 new directors on 7/25

3. Appoint Edward Lampert to the Motorola Board and others with Deep Communications Experience

  • No Change

4.Reduce the Size of and Insiders on the Board

  • No Change: In fact, they added a new insider to the Board (President and COO Greg Brown) and one outsider on 7/25; the board now has a bureaucratic 14 members.

5. Outline Motorola’s Strategy and How You Will Add Exciting New Products

  • No Change, although new Mobile Devices head, Stu Reed, tells us to wait for "wave upon wave of new announcements"... we're waiting.

6. Appoint a Permanent Head of the Mobile Devices Business

  • Positive Result: Stu Reed appointed on 7/11, 2 days after the draft “Plan B” first appeared.

7.Give Motorola’s Culture an Inspirational Transfusion

  • No Change

On Friday, they announced the sale of their embedded computing group to Emerson for about half of its revenues from last year. It was a continued focusing of the company on its Mobile Devices Business.

Today, Nokia went to Motorola's backyard to make its largest acquisition ever of Navtaq, where, with delicious irony, Ed Zander's predecessor - Chris Galvin -- is now Chair after leaving Schaumburg. Since Galvin joined the Navteq board on Oct. 22, 2004 through today, Navteq has returned 101% to its shareholders, while Motorola has returned 1.89%. Navteq's $8.1 billion valuation is now one-fifth of Motorola's -- not bad for a company which did less than $400 million in revenues in 2004.

The Navteq deal underscores how Nokia is consciously choosing to believe industry supremacy will be fought in the future in (high-margin) software and services. Until recently, Motorola didn't have a lead software architect for the company - so, clearly, it's playing catch-up in this arena.

Stu Reed was unimpressive in his debut at last month's Financial Analysts' Meeting in New York, promising fixes to problems created under the watchful eye of CEO, Ed Zander, and COO, Greg Brown (as well as the board, of course) without any details on how.

So, the bottom line is that Motorola hasn't yet taken the steps within its control to best position the company for future growth and to ensure it will not repeat the mistakes of the past. Put another way, there is still lots of opportunity to turn this company around. But it will need to make some tough decisions -- not just cut R&D spending, cut jobs and wait for an industry rebound to pick it back up, which -- along with "Seamless Mobility" -- appears to be the strategy.

In a few weeks (although the date hasn't been released by the company yet), we'll see how things are going for Motorola in its turnaround when it discusses its Q3.

We will be watching and continue to hope this board will be open to listening to thoughts and views from its shareholders. Onwards, "Plan B."

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