Motorola's (MOT) Problems

Motorola's (MOT) numbers this morning weren't pretty. For once in a long time, it wasn't only the Mobile Devices division that did in the quarter but the home networks and enterprise ones joined in, with profits in those units down 25% and 37% respectively from a year earlier.
Like a lot of companies this earnings season, MOT missed on the top line but beat on the bottom.
Mobile devices will not be spun-off any time soon, according to co-CEO Sanjay Jha.
Investors didn't like what they heard, and shares are off 7% this afternoon.

The company does have a number of positive things going for it. We're likely approaching the trough for worldwide sales of mobile devices. As people shun traditional PCs in favor of lighter netbooks and mobile computing devices, this market is set to rebound. RIMM's and Apple's (AAPL) recent earnings demonstrate this thesis is working. It's also comforting to know that, as bad as things have been for MOT, it still sold more phones than RIMM and AAPL did last quarter combined.

The bad news is that MOT is still led by an awkward co-CEO structure that was created when splitting the company seemed imminent. Greg Brown was an uninspiring choice to replace Ed Zander from the start. This company's board is still pretty much the one that oversaw the company perform hari-kari on itself. It's also very quickly destroyed its brand identity it had recaptured thanks to the RAZR.

It's possible the roll-out of the Google (GOOG) Android phones later in the year will create some buzz to jumpstart flagging mobile devices sales (down 45% from a year ago), but those are quite a few eggs in one basket. I would stay away from MOT.

Position: None.

Originally published in RealMoney.com on 4/30/2009 3:11 PM EDT

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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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Review: Moto Razr2, Q9m fail to excite

From the AP:

September 12, 2007: 04:33 PM EST

Sep. 12, 2007 (Thomson Financial delivered by Newstex) --

NEW YORK (AP) - Motorola (NYSE:MEU) (NYSE:MOT) rode high for a while on sales of its slim, stylish Razr phone.

When its competitive edge started to dull, the company set its hopes on the Q, a BlackBerry-like e-mail phone, which it initially thought would sell as well as the Razr.

Now, with Motorola's position as the world's No. 2 cell-phone maker in jeopardy, it has brought out a thoroughly reworked Razr, and jazzed up its Q with more music-oriented features.

Unfortunately for Motorola, neither of the new phones feels like a winner that's going to bolster the company's stock price, which is down 35 percent from its high of $26.30 set last year.

I tested samples of the MotoRazr2 and Moto Q music 9m for a few weeks, taking help from colleagues who were or are users of the original Razr, which was launched in 2004. Overall, we weren't seriously tempted with either of the new phones, though some improvements are noticeable.

We started out with one Razr2 from each of the three largest carriers: AT&T Inc. (NYSE:SBT) (NYSE:T) , Verizon (NYSE:VZC) (NYSE:VZ) Wireless (NYSE:VOD) and Sprint (NYSE:FON) Nextel Corp. AT&T charges $300 for the phone with a 2-year contract, the others charge $50 less.

The Razr2 is thinner than its ancestor, but slightly longer. One former Razr user said it felt 'too big,' but this is mostly an illusion. It's created by the Razr2's sturdy feel, which is reinforced by heavy-duty metal hinge and by its heft. It weighs 4.6 ounces, about an ounce more than the Razr, depending on the model.

Overall, it does feel slightly less pocketable than the Razr, and it's harder to flip it open elegantly with one hand.The other immediately noticeable difference is the large color LCD screen on the outside of the clamshell. At 2 inches diagonal, it's just slightly smaller than the inside screen. It's not exactly a touch screen, but it does have three touch-sensitive areas, with different functions depending on the carrier-specific model. For instance, the Sprint phone has buttons for the mobile TV, music player and camera functions.Sadly, the outside screen is a mostly wasted feature, though one of us liked it for controlling music. The touch-sensitive buttons are vexing to use, and poorly programmed. For instance, you can activate the 2-megapixel camera and take pictures, but only of yourself, because both the screen and the lens will be facing you. And then you can't get out of camera mode using the outside screen -- you have to open the phone and hit a button.

And what is it we like about clamshell phones anyway? That's right -- that we don't have to lock their keypads before slipping them in our pockets or bags. With the Razr2, you do have to lock the buttons on the outside screen (by pressing and holding a button), at least if you were playing music before closing up the phone. On several occasions, a closed phone started serenading our pockets before we figured this out.

The rest of the interface is clunky, but works. We didn't really take to the TV and music-downloading features that rely on the carriers' cellular broadband networks. The video clips are still small and jerky, and the music selections hard to navigate.The best part of the Razr2 may be CrystalTalk, a technology that improves incoming and outgoing sound quality in noisy areas like restaurants and trains. Another nice feature: you don't need to teach the phone to recognize specific phrases for voice-activated dialing -- just read out a phone number or say the name of a contact.The rated standby time for the Razr2 is 330 hours, or two weeks. That might be true under the best of circumstances -- in light use, we recharged the phones every four days. The Verizon Wireless model, however, wouldn't hold a charge for more than a few hours, so we got a replacement. It only held a charge for 24 hours. This is worrisome, but it appears to be a fluke -- neither Motorola nor Verizon said they had heard reports of power problems. Certainly, if a brand new phone acts like this, return it to the store.The Q9m is only available on Verizon, and costs $200, though there's an additional $50 mail-in rebate available. It has a very tough act to follow: Apple Inc.'s iPhone launched two months ago and, as far as I'm concerned, slapped the smart-phone category silly with its large screen and fantastic interface.

The Q9m does have three things on the iPhone:

-- A good hardware QWERTY keyboard, probably the best I've seen on a smart phone. The buttons are rubberized and gentle on the fingertips.

-- Access to Verizon's broadband network, with makes for faster e-mail retrieval than AT&T's poky Edge network from AT&T.

-- Since it has Windows software, it's easier to get work e-mail on it. I was, however, not able to test this.

So as an e-mail device, the Q9m is serviceable, but the main reason Motorola and Verizon updated the original Q -- which came out just last year -- is to make it more of a music player. It has access to Verizon's Vcast music store, and there's a choice of two different top menus, one of which is more music-oriented.

I would much rather have had one top menu that worked really well. The Q9m lacks a touch screen and instead relies on a side-mounted BlackBerry-style scrollwheel. Combined with the sluggish Windows Mobile software, this makes the phone just too slow, clunky, and confusing.

Important features are hidden and screen space is wasted.The best I can say about the Q9m is that if I was issued one for work, it wouldn't be much of a burden. But after the iPhone, everyone really needs to work a lot harder to impress with a smart phone.

As for the Razr2, if you're like most people and want a phone mostly to talk on, it's not a bad choice, though it may be hard to justify paying $200 to $300 more than you would for an original Razr.

Associated Press Writers Joe Altman, Barbara Ortutay, Dan Scheraga and Seth Sutel contributed to this report.

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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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