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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Dow Jones: More Job Cuts Expected As Motorola Continues To Struggle

By Roger Cheng Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)


Thursday January 15th, 2009 / 17h30

- The bloodletting has only begun for Motorola Inc. (MOT). Fresh off of eliminating 4,000 jobs, many believe the embattled telecommunications equipment maker still needs further cuts to survive, particularly as it feels the squeeze from a faltering handset market and increased competition. Even after the recent cuts, critics believe the company still carries a bloated work force.

"They are still way too overstaffed," said Bill Choi, an analyst at Jefferies & Co. "What you really need is a combination of cost reductions and a meaningful improvement in the portfolio."

Motorola shares recently rose 6 cents, or 1.5%, to $4.17.

While Motorola has been working on better handsets, including more smartphones, analysts don't see anything significant coming out until the end of the year. In the near term, the company can only control the costs.

Motorola spokeswoman Jennifer Erickson declined to comment, saying the company wouldn't speculate on further job cuts.

The cuts are expected to yield $700 million in savings this year. That comes on top of the $800 million in savings gleamed from restructuring actions taken in the fourth quarter.

In the past three months, Motorola announced 7,000 job cuts, with 5,000 coming from the mobile devices division. That's roughly a 25% reduction in the unit, but many believe that isn't sufficient. The company still has roughly 20,000 employees in its mobile handset business.

In comparison, Sony Ericsson, which sells slightly more handsets than Motorola, employs 9,400. The company, a joint venture between Sony Corp. (SNE) and L.M. Ericsson Telephone Co. (ERIC), has said it wants to cut 2,000 workers. While a direct comparison between Sony Ericsson and Motorola is unfair, the difference in staff versus their similar handset sales numbers is telling.

"The issue of the day is cost," said Eric Jackson, managing member of activist hedge fund Ironfire Capital LLC and a former Motorola shareholder. While getting Motorola trimmer was one priority, Jackson believes the company's underlying problem comes from its lack of direction - a problem exacerbated by the co-chief executive leadership structure.

In terms of fixing the cost structure, analysts were reluctant to give specific numbers on the necessary cuts. "It's tough to say what the appropriate level is," Choi said. Motorola's cost structure will look increasingly out of hand as the mobile devices business continues to lose ground and handset shipments fall further.

In addition to the slowing handset market, other handsets are likely to take Motorola's share of the market. A new version of the Apple Inc. (AAPL) iPhone, new Research in Motion Ltd. (RIMM) Blackberrys, and even the Palm Inc. (PALM) Pre could slice into Motorola's high-end device sales, leaving it only the cheaper devices.

Motorola co-Chief Executive Sanjay Jha promised better smartphones. "We are making good progress in developing important new smartphones for 2009 and are pleased with the positive response from our customers to these new devices," Jha said in a statement.

Still, the new handsets aren't likely to arrive until the fourth quarter. "Their products are just not competitive," said Matthew Thornton, an analyst at Avian Securities LLC. "They're left in no man's land." But even if Motorola comes out with a blockbuster handset now, it couldn't turn a profit because its cost structure is too high, he noted. Beyond job cuts, Motorola will have to look hard at other places, including the supply chain, outsourced staff, and other general expenses. "It's a necessary step and the right step, even if it's not pleasant," Thornton said.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

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BusinessWeek: Motorola's Market Share Mess

The company's lack of compelling new phones continues to depress market share, which threatens plans to spin off the handset division

July 10, 2008, 12:40AM EST
by Olga Kharif and Roger O. Crockett

Motorola's phones once held so much cachet that mammoth wireless carrier AT&T clamored for the exclusive right to sell the best-selling Razr. This year, AT&T (T) has taken only one new Motorola phone, the Z9 slider.

The company's falling star at AT&T, the largest U.S. mobile-phone carrier, underscores Motorola's persistent failure to release handsets that grab the attention of consumers and the service providers whose marketing is crucial to sales. It only reinforces concern over Motorola's ability to spin off the leaderless, money-losing handset division.

Once having commanded more than one-fifth of the global handset market, Motorola (MOT) likely ended the second quarter with 8.5% share, from 9.3% in the first quarter, according to Avian Securities. In June, Avian analysts surveyed 100 representatives of AT&T, Verizon Wireless, Sprint Nextel (S), and T-Mobile USA (DT) retail locations and found that Motorola phones no longer even make it onto the list of the top 10 best-selling handsets. Motorola's shelf space at the major carriers declined to 15% in June, from 18% in May, according to the survey. "They lost a lot of scale," says Avian's Matt Thornton.

Motorola's ability to gain share is being hampered as rivals including Apple (AAPL) and Research in Motion (RIMM) step up their attack on the market for smartphones, multifeatured handsets that deliver e-mail, productivity applications, and other advanced services. Motorola has yet to deliver AT&T an update to its smartphone, the Q, which debuted in 2007. In roughly the same time frame, Apple has delivered two versions of its popular iPhone.

BlackBerry maker RIM has released two new smartphones with AT&T this year alone. Samsung's recently released Instinct is another device grabbing buyers' attention. Some analysts see Motorola losing further share. Motorola may end up with as little as 6% global market share by yearend, Thornton estimates.

No Guarantee of Spin-Off Success

Greg Brown, who succeeded Ed Zander as Motorola CEO last year, has acknowledged that Motorola needs a fresh lineup of phones—and that the company was working diligently on getting new products to market. Still, Motorola lags competitors in doing just that. Motorola's few releases—such as the Z9 slider—have fallen relatively flat. "Motorola is taking aggressive steps to improve the performance of the mobile devices business," company spokeswoman
Jennifer Weyrauch says in an e-mailed statement. "We are working more closely than ever with customers to tailor our innovative products to meet their needs. We're also sharpening our focus on product development to deliver the mobile experiences consumers desire."

Aggressive as those steps may be, they're doing little to assuage the concerns of investors such as Eric Jackson, who until recently held the stock in hopes that recent changes that handed a board seat to financier Carl Icahn would catalyze a turnaround. But Jackson dumped his holding a month ago, despite a 30% loss. "As an activist investor, you have to be ready to find out the situation is worse than you thought," says Jackson, founder of Ironfire Capital. "Then, you've got to be able to cut your losses."

Unable to stem its own mobile-phone losses, Motorola is believed to have tried to sell the handset division. When those efforts failed, it opted to spin it off. Now the spin-off plans are faltering as well, in part because the economic slump is eroding demand at Motorola's other businesses and weakening the company's financial standing, analysts say. "Any deterioration in [other divisions] will place additional pressure on profitability and cash flow with implications for the timing and viability of the planned spin-off of the handset business," Avian's Thornton wrote in a July 7 report.

On June 23, Piper Jaffray (PJC) analyst T. Michael Walkley cut Motorola shares to sell in part because he doubts the spin-off is likely any time soon. Motorola stock fell 18¢, or 2.5%, to 7.15 on July 9. The shares have declined 56% since the beginning of the year.

Even if Motorola succeeds in spinning off the money-losing business, public markets may not welcome it with open arms. "We never were confident the separation would generate more shareholder value," says Todd Rosenbluth, an analyst at Standard & Poor's, which, like BusinessWeek.com, is owned by The McGraw-Hill Companies (MHP). "The handset business has been supported by sales to cable customers and government contracts. A struggling business on its own may not be the best thing for investors."

Any Buyers?

So what's Motorola's Plan C? Weyrauch, the spokeswoman, says the company is "moving forward with our plans to create two independent, publicly traded companies." American Technology Research analyst Mark McKechnie says shuttering the business is now a real possibility.

Motorola could also revert to Plan A, some analysts say. "We think they are going to get acquired rather than be spun off successfully," says Richard Doherty, director of consultancy Envisioneering Group. In that case, Motorola would be lucky to fetch $500 million, says McKechnie, who as recently as a half-year ago valued the business at $8 billion. Since then, however, market share slides and continued share price declines have prompted him to revise his estimate. Another analyst, Richard Windsor of Nomura, believes Motorola may actually need to pay someone to take the handset division off its hands.

All of this presupposes Motorola can find a buyer in the first place, however. Private equity firms could be induced to buy the division on the cheap. Firms including Bain Capital are reportedly bidding for rival handset maker Huawei, and on July 1, AIG Investments (AIG) purchased UTStarcom's (UTSI) handset business for $240 million. "There are people who want to buy handset companies, and it might be a good time to sell," says David Chamberlain, an analyst at consultancy In-Stat.

Meantime, someone needs to run the business and Motorola may have a hard time finding that person. Sources who asked to remain anonymous tell BusinessWeek.com that at least two people, including an internal candidate and Todd Bradley, an executive vice-president at Hewlett-Packard (HPQ), have declined the top job. Weyrauch declined to comment on the executive search. Rosenbluth sums up the concerns left on many people's minds: "We thought by now we'd have more details [on the restructuring and the new CEO], and the lack of details is disconcerting."

Kharif is a senior writer for BusinessWeek.com in Portland, Ore. Crockett is deputy manager of BusinessWeek's Chicago bureau .

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Chicago Tribune: Motorola pressed on date of split

Shareholders asking if spinoff can save handset unit, and when it will happen
By Wailin Wong Tribune reporter
May 4, 2008

In the run-up to Motorola's 2008 annual shareholders meeting, vocal investor Carl Icahn threatened a proxy battle, sued the company, helped persuade executives to pursue a breakup and won two seats on the board.

Those events were just a prelude to the tough stockholder scrutiny Motorola will face in the year ahead as it tries to prepare its ailing cell-phone division for independence. On Monday evening at the Rosemont Theater, Greg Brown will address frustrated shareholders for the first time since becoming chief executive in January.

Investors have watched Motorola's stock sink 45 percent in the last year, hitting a 52-week low in mid-April, and the company's global market share in cell phones has eroded to 9.5 percent from 17.5 percent a year ago. Earlier this month, the Schaumburg-based equipment-maker reported a 39 percent decline in mobile phone revenues from a year ago, and industry data show South Korea's LG could unseat Motorola as the No. 3 handsetmaker this year.

The pressing questions Icahn and other shareholders will pose to Motorola executives are whether Brown's team can save the handset business and when the breakup will take place.

Motorola, having announced in late March that it will split into two independent firms, is under heavy pressure to move quickly.

The longer the company takes to complete the breakup, the less value there is in each of the two stand-alone units—threatening the logic for splitting in the first place. Motorola executives say the process won't be done until 2009. Even if the separation takes place in the first quarter, Motorola still will face half a year of continued losses in revenues and market share because its revamped phone portfolio won't come until early 2009.

"The value of that unit appears to be declining," said Scott Fenn, a managing director of policy at Proxy Governance, a shareholder advisory firm that supported Icahn's nearly successful board bid last year. "I think there are a lot of question marks around the potential value of it now because it really has taken a big hit in recent months."

Brown insists on 2009

Brown insists on the 2009 timeline. In an interview with the Tribune after Motorola's first-quarter earnings announcement April 24, he said the breakup is "a pretty involved process" because of Motorola's large scale. Executives are still deciding the fate of the brand and how to divide up intellectual property.

"2009 is an appropriate estimate," Brown said, although he declined to be more specific. He also had few other details on finding a CEO for the handset division, saying only the search is progressing.

As Motorola's performance slumped over the past year, hurt by its failure to follow the once-mighty Razr with a lineup of successor phones, Icahn pressed for a breakup. The investor, whose stake is 6.3 percent, argued that cleaving Motorola into parts would allow each component to be valued more and create a better deal for shareholders.

Many analysts agreed, saying the mobile division's losses weighed down the other two segments, which make products such as wireless equipment and cable television set-top boxes. Those businesses remain profitable, but their growth was tepid in the first quarter.

"These results throw into question the wisdom of separating the company into two entities," analyst Dave Novosel of Gimme Credit wrote in a report.

Icahn wants to push his own ideas for the turnaround. When Motorola announced its decision to separate, he asked the board in an open letter: "Why will it take you until sometime in 2009 to accomplish the separation? ... Do you intend to carry out your proposals or will it be a repeat of last year's proxy fight strewn with a string of broken commitments?"

Icahn and Motorola agreed in April to have Keith Meister, a managing director of Icahn's investment funds, appointed immediately to the board. The company is also backing a second Icahn ally, William Hambrecht of investment bank WR Hambrecht & Co., for election.

With Meister and Hambrecht on the board, "I definitely would suspect that they would be pushing for [the breakup] to happen this year," said Eric Jackson, who heads an activist investment firm and organized a shareholder campaign against Motorola in 2007.

Shareholder impatience

Employees are likely feeling the same impatience as shareholders, and depressed morale won't help Motorola's mobile division pump out new designs by year's end.

"The longer the deal takes to get announced and the longer they have to sit and agitate, the greater the decrease in productivity," said David Hinkel, a senior consultant at Towers Perrin.

CreditSights analyst Ping Zhao said "the rationale for breaking up is still there," even if the two pieces' individual values are lower than what they were several months ago.

"The bigger issue is, can that [cell-phone] business stand alone?" Zhao said. "What we've said for a long time is that 2008 is pretty much gone for them. The question there is 2009. They keep saying they have new products. Unfortunately, we haven't seen any. ... There is a huge amount of uncertainty about what exactly it will take and how long it will take to turn around that business."

wawong@tribune.com

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TheStreet.com: Motorola Changes Not Enough

Cross-posted from this morning's TheStreet.com:

Motorola's (MOT - Cramer's Take - Stockpickr) fall from its perch atop the mobile-phone world has taken less than a year.

A year ago, the company successfully convinced its shareholders that they shouldn't elect Carl Icahn to the board, after the activist shareholder ran an unsuccessful proxy contest to shake things up at the company. Motorola management claimed that he was out of touch with the long-term interests of the company, as he had called on Motorola in early 2007 to initiate a massive stock-buyback plan and take on significant debt.

Management promised a turnaround was right around the corner for the 80-year-old company, with exciting new handsets beyond the Razr, and shareholders chose to believe them.

Today, Motorola's former CEO, Ed Zander, is on his way out after a string of missed quarters following last year's annual meeting. The company still has no stand-alone head of its mobile devices business (the current CEO, Greg Brown, is acting head). And the much-promised new handsets have been flops. Motorola now says the next batch of exciting new devices won't appear until well into 2009.

Instead of facing a proxy battle with Icahn again this year, Motorola recently folded its cards and agreed to appoint two of the investor's representatives to the board. The company also caved to Icahn's demand that the company split itself up in order to better recognize the value of the underlying businesses.

You might think these moves are enough to bring back the magic at Moto. They're not.
For the last 20 years, Motorola has perennially underperformed its potential. Back in the 1980s, Motorola was an American icon, a name arguably as big as General Electric's (GE - Cramer's Take - Stockpickr). Today, a comparison between the two is laughable. From 1992 through today, GE stock gains have outperformed Motorola roughly 450% vs. 50% (vs. 250% for the S&P 500).

History Repeating

What's also maddeningly frustrating for me as a shareholder is that Motorola already lived this current nightmare of its revenue dropping off a cliff 10 years ago. The company had a hot phone that grew so popular it took attention from developing other devices until -- after a great run -- the well ran dry and the company had to start from scratch. I'm not talking about the Razr -- but the StarTAC.

If you bought some Moto stock 10 years ago, you were getting in just as the StarTac was becoming the "must have" phone at the time. Attention-craving execs would lay it out on their lunch tables, eliciting compliments from others. Your Moto investment would have doubled in a couple of years.

Fashion designers know they have to change their lines every season, but Motorola's board and management team didn't. They failed to produce any popular successors, and Moto's shares lost 75% of their value from 2000 to 2003.

The board brought in Ed Zander in early 2004 to replace former CEO Chris Galvin. The ultra-slim Razr was just being released and it became the new StarTac. From the start of 2004 to October 2006, Moto's shares rose 60% -- triple the S&P's performance.

After three years of selling Razrs, with countless knock-offs, Motorola again hit the wall. Its stock is down 63% from 18 months ago. Despite its latest changes, Motorola needs to do much more.

Last July, worried that the company was going to sit back after beating back Icahn's bid for a board seat, I launched an activist campaign as an individual shareholder in Motorola. Using Web tools like blogging, YouTube videos, wikis and a "pledge your Moto shares" widget, I encouraged 130 other small investors to pledge a collective 600,000 Motorola shares (worth about $6 million today) in support of a "Plan B" of changes for the company to follow.

Unfortunately, the company failed to enact almost all of our "Plan B," except for replacing Zander.

When I launched my own activist hedge fund earlier this year, I deliberately bought no Motorola shares (although I still own some personally). Based on Motorola's inaction since I began my campaign, I couldn't look my own shareholders in the eye and justify an investment in the company.

However, I still feel a sense of loyalty to the many people who joined up with my campaign last year and want to see this company finally right itself. Many of the 130 people who "pledged" their shares with me last year were current or former Moto employees. Some of them have recently contacted me and asked my opinion on how they should vote their shares at the upcoming Motorola annual meeting on May 5. To them, I say: You have the power to finally improve this company by how you vote your shares.

A Bureaucratic Board

Motorola's board is highly dysfunctional. At 14 members, it's too large and bureaucratic. In my experience, when boards get larger than 10 members, they become more formal, there is less time for discussion and debate and the directors are more reluctant to speak up. It becomes less like a meeting of high-level advisers wanting to understand the growth of the business and protect the interests of shareholders and more like a slow day at the U.N. General Assembly.

Motorola has some very strong members (including its new Chairman David Dorman, who used to run AT&T (T - Cramer's Take - Stockpickr), and Tom Meredith, who has been acting CFO since last year and formerly Dell's (DELL - Cramer's Take - Stockpickr) CFO). And although the two new Icahn reps should help matters, this board needs an overhaul.

This group, charged with overseeing and monitoring the state of Motorola on behalf of shareholders, clearly shares the blame for what has happened. Yet, all the incumbent directors from last year (except Zander) are up for election again this year. That's simply wrong.

What's particularly puzzling is why Samuel Scott III, Judy Lewent, Nicholas Negroponte and Dr. John White are still on this board. I don't have anything against the backgrounds or experience of them, but each of these directors has been on the board for more than 10 years. That means they've had a front row seat to the two boom-and-bust cycles of the StarTac and the Razr. How could they let exactly the same problems occur twice under their watch?

Even in the best performing companies, no director (unless they're a founder or critical officer) should be on a board for a decade. Fresh eyes should be periodically cycled into the group to ensure it never becomes too clubby. For a company that's lost half its value in the last decade, it's unconscionable to have four directors with such a lengthy tenure. (Scott's actually been on the board for 15 years.)

Unless you're the owner or the owner's child, you don't get to drive out half the value in a company over 10 years and keep your job.

That's why all fellow Motorola shareholders should vote "withhold" for directors Lewent, Negroponte, Scott and John White. They should also vote "for" the three shareholder proposal on say-on-pay, recouping unearned management bonuses and new corporate standards at Motorola. In doing so, they'll embarrass the old guard into leaving.

Voting "against" directors does have an impact. I urged institutional and retail shareholders to vote against several of Yahoo!'s (YHOO - Cramer's Take - Stockpickr) directors last June (here's one of my YouTube political-style campaign ads). Thanks also to the company's poor performance, high executive compensation and support from some of the proxy advisory firms, several Yahoo! directors received over 35% "against" votes. Six days later, Terry Semel resigned as CEO.

Motorola shareholders should be upset at this company's performance. But Icahn's involvement is not a cure-all. It would be easy to be a free rider as a shareholder and think that you can leave it to Icahn to fix things. That's not enough. Many more changes need to be made at the board-level and within this company. Get out and vote.

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BusinessWeek: Motorola Caves to Icahn

The troubled cell-phone maker agrees to back two board nominations from activist investor Carl Icahn

Technology April 8, 2008, 12:01AM EST - BusinessWeek

By Olga Kharif

When Motorola CEO Greg Brown agreed on Apr. 7 to back two of Carl Icahn's nominations to the company's board of directors, it was an admission of defeat. Icahn, the activist shareholder who has been calling for changes at Motorola (MOT) and demanding board representation for a year, had substantially beefed up his stake in the cell-phone and network-equipment maker in recent months, likely rendering further efforts to block his nominations moot.

Since Icahn first demanded a board seat a year ago, his voting power has more than doubled to 6.4%, according to Securities & Exchange filings as of late March. While that alone wouldn't be enough to elect his representatives, Icahn is believed to have built considerable support among other agitators. "Other pushers for change have started to move into the shares," says Ronald Orol, author of Extreme Value Hedging: How Activist Managers Are Taking On the World (Wiley, 2007).

Icahn might have gained some board seats—perhaps as many as four—at the annual meeting in May, says Orol.

Icahn's Men on the Inside

So Motorola cut to the chase, adding two Icahn representatives to its own slate: William Hambrecht, CEO of WR Hambrecht + Co., and Keith Meister, a managing director of Icahn's investment funds and principal executive officer of Icahn Enterprises.

The latter nomination, effective immediately, is a huge win for Icahn. When Icahn first tried to get Meister on the slate for last year's nominations, Motorola rejected the idea, telling investors that Institutional Shareholder Services, the proxy advisory firm, had once "questioned Meister's limited financial background." As recently as March, Motorola again refused to endorse Meister's nomination, prompting a sarcastic quip by Icahn about the company's plunging market value in his own letter to Motorola's shareholders: "What does one have to do to qualify—lose $37 billion dollars?"

The capitulation came less than two weeks after the ailing gearmaker had already caved in to Icahn's biggest demand: On Mar. 26, Motorola announced plans to split its business into two parts by spinning off its iconic but ailing mobile-phone business.

Investors applauded Icahn's victory, boosting Motorola's stock by 1.76%, to 9.84 a share. Yet in accepting defeat, Motorola has managed to dilute the leverage Icahn's representatives can wield. One of the two slots going to Icahn's representatives will be vacated by former CEO Ed Zander. But the other will be created by expanding the board's size from 13 to 14 rather than replacing another one of the existing directors. And as part of the deal, Icahn withdrew his lawsuits against the company.

Breakup Insurance

What will Icahn's victory mean for Motorola's future? For starters, with fewer distractions from lawsuits and proxy battles for board seats, management will be able to concentrate on righting the troubled business. "They are going to keep on the path they are on right now," says Eric Jackson, a money manager who represents "Motorola Plan B," a group of 135 individual investors, mostly former and current Motorola employees, who collectively hold 600,000 shares.

What Icahn's representatives will do now is see that company's breakup to completion. By gaining board seats, "Icahn just wants some assurance that they are going to go through with [the separation]," Orol says. When the plan was announced, Motorola hedged its words, stating that "there can be no assurance that any separation transaction will ultimately occur or, if one does occur, its terms or timing." So far, says Standard & Poor's analyst Todd Rosenbluth, "all we've heard is the [plan for a] spin-out." With no information about who will lead the phone business, what the terms of the spin-off will be, or when it might happen, "there are better alternatives" for investors, Rosenbluth says.

While global cell-phone sales are expected to increase 9% this year, Motorola's handset sales are forecast to fall by 3%, according to S&P. The company is expected to break even this year after losing $49 million in 2007.

Icahn might also push to accelerate the reported negotiations with rival equipment maker Nortel Networks (NT) to acquire or to create a joint venture with Motorola's cellular infrastructure business, says Mark McKechnie, an analyst with American Technology Research. "I've got to imagine Carl Icahn has got more up his sleeve than agreeing to a status quo and the current plan," he says.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

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IR Magazine: Motorola investors victorious

From IR Magazine:

Apr 02, 2008

Activists trigger company split

ILLINOIS -- After seeking a more independently led mobile division for nearly a year, activist shareholders have finally succeeded: Motorola will split off its mobile devices group.

Billionaire Carl Icahn has been demanding company reform since his proxy battle for a seat on the board was defeated last year. But Motorola’s second-largest shareholder has not been the only catalyst for the recently planned break-up.

Smaller activist investors have also pressured the company. Eric Jackson of Ironfire Capital, an activist hedge fund, has demanded change since last summer through his blog ‘Plan B for Motorola’. Its following of 600,000 pledged shares has seen some demands realized.

‘One of the Plan B criticisms was that Motorola had not hired a head for the mobile devices group, an omission the company remedied a week after the plan first came out,’ Jackson says. But Motorola’s CEO Greg Brown got rid of the new position earlier this year when he replaced Ed Zander, whose ousting was also proposed in Plan B.

Motorola has not introduced new members to the bored or outlined a long-term vision and strategy for the company, two issues dear to Plan B’s heart. But Jackson thinks it is very likely Icahn will get four seats on the board this year due to continued poor performance and decreased confidence in company management.

By Taylor Swinney

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Chicago Tribune: Icahn pressures Motorola

Suit seeks documents about hiring, strategy

By Wailin Wong Tribune reporter

March 25, 2008

Activist investor Carl Icahn cranked up the pressure on Motorola Inc. on Monday, suing the company to try to gain access to internal documents ahead of a May showdown over board seats.

Icahn, who owns just over 6 percent of Motorola, said he wants the Schaumburg-based telecommunications equipment-maker to provide records relating to the hiring of senior executives and corporate strategy, especially as it relates to its mobile devices business.

Motorola spokeswoman Jennifer Erickson said in an e-mailed statement the company hasn't received a copy of Icahn's lawsuit, which was filed in Delaware Chancery Court.

Icahn and the company are preparing for their second proxy showdown at Motorola's annual meeting in May. Icahn is running a slate of four candidates for the board, including Keith Meister, chief executive of Icahn Enterprises LP. The others are Frank Biondi Jr., former CEO of Viacom Inc.; William Hambrecht, CEO of investment bank W.R. Hambrecht & Co.; and Lionel Kimerling, a semiconductor expert at the Massachusetts Institute of Technology.

In an interview Monday with the Tribune, Icahn said Motorola wants "to keep [Meister] off for no real reason" and described the current board as a "fraternity," echoing the language he used in a letter to shareholders released Monday.

Icahn and Motorola have tangled repeatedly over his access to internal documents. Erickson said Motorola offered to provide records under a "customary confidentiality agreement, but Mr. Icahn chose not to avail himself of that opportunity and instead seeks to create further unnecessary distraction."

Earlier in March, Icahn asked for the documents, and Motorola's lawyers sent him a written rejection, prompting him to file suit. According to a copy of the letter, the company found his request to be "egregiously overbroad."

Icahn said in his Monday statement he wants to view documents related to Motorola's financial performance, personal use of company aircraft and the potential spinoff of its handset division. Icahn has long pressed for a breakup of Motorola, saying the value of the company would rise significantly if the cell phone unit were a separate company.

"You'd spin it off and it would certainly keep the brand," Icahn told the Tribune. "It's a great brand with great intellectual property. It just needs someone to run it properly."

Motorola said in late January it was considering shedding its handset division. In the meantime, Chief Executive Greg Brown has taken direct control of the ailing business and replaced many senior managers.

But Icahn expressed impatience at the pace of change and improvement."Now is the time for action, not more indecision," he wrote in his letter to shareholders. "It is therefore especially vital that we have the right people on the board to drive, guide and monitor this restructuring and spin off process through to completion."

Icahn chastised Motorola's board and management for "empty promises," saying they've only let the handset division deteriorate further despite pledging a turnaround at the 2007 annual meeting. In the last year, Motorola's stock has plunged 45 percent. It hit a new 52-week low of $8.98 per share Thursday. On Monday, Motorola's shares closed at $9.69, up 44 cents.

Eric Jackson, who heads a Florida-based Ironfire Capital, an activist investment firm and organized a grass-roots shareholder campaign against Motorola last year, said the plummet in the company's stock price to below $10 "was the tipping point for a lot of shareholders in terms of being frustrated."

"We're supportive of Mr. Icahn and the kinds of changes he's offering," Jackson said. "I'd be in favor of any significant activist shareholder at this stage, compared to just signing a blank check over to Greg Brown."

wawong@tribune.com

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BusinessWeek: Motorola: Left to Its Own Devices

The equipment maker's inability to find a buyer for its beleaguered cell-phone unit revives the urgency of reforming the division from within

February 25, 2008, 12:01AM EST
by Olga Kharif and Roger O. Crockett

To many the recent announcement that Motorola (MOT) was exploring options for its troubled handset division was seen as a sign the once-legendary business would soon be sold. That seemed a better outcome than, say, a spinoff or internal overhaul for a business mired in losses.

Yet almost a month later, despite rumors of acquisition interest from such heavyweights as Korean electronics maker LG and U.S. PC giant Dell (DELL), bankers, analysts, and industry executives close to Motorola say a sale is neither imminent nor likely. Several Asian handset makers have publicly said they're not interested (BusinessWeek.com, 2/4/08). One banker gives a sale a "50-50" chance, at best.

And while potential buyers may have run proposals by the phone-making giant, none appears willing to offer as much as Motorola's management is seeking. Analysts say the beleaguered business is worth no more than about $8 billion—a far cry from the $10 billion it was once suggested that Motorola might be able to fetch. The lack of acceptable bids has added renewed urgency to Motorola's backup plan: an in-house revamp. Improved performance would help Motorola sell the division at a more attractive price later, spin off a higher-value asset, or even hang on to a revitalized handset maker.

A Fixer-Upper

From early in his tenure, Motorola CEO Greg Brown has given strong signals he's intent on tuning up the cell-phone business. He has taken operational control of the unit, replacing former head man Stu Reed, who has left the company. Those familiar with Brown's plans say he has been weeding out underperforming executives and those he had no hand in hiring. Meanwhile, he's attempting to attract the talent Motorola desperately needs. "He knows what to do to fix this business," says Robert Laikin, CEO of Brightpoint (CELL), a major cell-phone distributor.

Plenty needs fixing. In the fourth quarter, handset sales tumbled 38%, to $4.8 billion, from a year earlier, and the division lost money. Motorola's share of global cell-phone unit shipments dropped from 22% in 2006 to 13.8% last year. Had Motorola found a buyer, "they'd certainly not be selling on a high note," says Todd Rosenbluth, an analyst with Standard & Poor's.

Brown may also need to spend big to ramp up handset production. Mark McKechnie, an analyst with American Technology Research, estimates the company needs to spend $500 million to $2 billion to come out with a new and exciting product line. Adds Motorola shareholder Eric Jackson, president of Ironfire Capital: "The R&D pipeline was really bare [six months ago] and still is." As of December, Motorola had $2.75 billion in cash.

Collaborative Effort

Although a deal isn't imminent, the prospect of a sale or at least a partnership is not dead. Banking sources say major private equity funds, from Blackstone Group (BX) to Silver Lake, are circling the company. And lots of private buyers may be interested. Some Chinese vendors such as ZTE have long wanted to conquer the U.S. market and have talked about cultivating relationships with Motorola. "ZTE often talks with other leading telecommunications manufacturers around potential opportunities for collaboration," ZTE said in a statement.

Company officials declined to comment on a potential alliance with Motorola's phone unit. Motorola told analysts during the industry's big trade show in Barcelona earlier this month that it has two parties interested in the business. Company officials would not specify which, but they acknowledged looking into partnerships as well as a sale. So it's conceivable that Motorola might enter into a joint venture with a company with a proven track record in consumer marketing. Potential partners include LG, Samsung, and even Google (GOOG).

Pressure to Act Fast

Nor is anyone ruling out a spinoff, now or in the future. These kinds of spinoffs are in Motorola's blood: Back in 2004, the company spun off chipmaker Freescale Semiconductor, earning its investors hefty short-term returns. Freescale was later snapped up in 2006 by a consortium of private equity firms. "We think the most likely scenario is a spinoff to shareholders," says Richard Windsor, an analyst with Nomura. "It gives [shareholders] an option to stay or go."

Unfortunately for Brown, many investors are choosing to go. The company's stock is down 30% since the beginning of the year. Most analysts don't expect Motorola to sell more than 30 million handsets this quarter, which would mean even further erosion in share. "They've got to do something quick," McKechnie says. "The asset is deteriorating."

Kharif is a senior writer for BusinessWeek.com in Portland, Ore. Crockett is deputy manager of BusinessWeek's Chicago bureau

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Motorola Does Not Rule out Break-up of Company

Here's an interesting story from Reuters, covering my favorite member of the Motorola Management team (and Board): Tom Meredith. Tom's all business and is credible. He says he doesn't rule out a break-up of the company.

Interesting. Here was his reaction back on July 19th when people speculated that Ed Zander was going to be replaced. "The board is not actively looking for a new CEO.... The (BusinessWeek) story is incorrect. Our board believes we have the right strategy and the right team in place." It turns out that -- less than a week later -- the Board elevated Greg Brown to join the Board himself (on July 25th), which now in hindsight clearly shows that the Board had already decided to make the change at the top but wanted to give Brown a little more seasoning.

Of course, I still like Meredith -- and I still think he's credible. However, given this earlier statement and fact, I would say that the message of today's comment is: "We're open to offers. Step right up!" As I've said elsewhere, that's smart -- given where the company is now and where it needs to get to....

NEW YORK, Dec 6 (Reuters) - Motorola Inc (MOT.N: Quote, Profile , Research) Chief Financial Officer Tom Meredith did not rule out a break-up of the company as he affirmed the phone maker's earnings guidance for the fourth quarter on Thursday.

Asked about a recent call by activist investor Carl Icahn for Motorola to break into several units, Meredith would not rule out structural changes to the company, which has been losing market share to rivals due to a weak phone line-up.

"I believe there's every opportunity for us to create significant economic value as a whole. Does that mean other options aren't viable? Not at all," Meredith told an investor conference Webcast.

Meredith backed Motorola's forecast for fourth-quarter earnings per share from continuing operations of 12 cents to 14 cents per share. He said Motorola's mobile device unit would see sequential revenue and bottom-line improvements. (Reporting by Sinead Carew, editing by Dave Zimmerman)

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Selling Motorola's Handset Business to Dell is Smart

One rumor going around in the last few days is Motorola selling its handset business to Dell -- essentially breaking itself up as Carl Icahn and I have called for.

This more would be smart. Tom Meredith has been the best performing member on MOT's Senior Leadership Team this year. The former CFO of Dell is also on the board of Motorola and is well-respected. Dell, of course, also employs the former head of MOT's handset business - Ron Garriques.

With so many quesitons about Motorola's future and the lukewarm reaction to Greg Brown's proclamation last week, I would trust Michael Dell any day to better run this business.

For Dell, though, there's value here too. What's more, it is a strategically important move to keep pace with Apple in exciting new growth areas -- areas that Dell desperately covets for its own growth.

Where do I go to tender my Motorola shares?

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Motorola Should Be Broken Up

Following the launching of our "Plan B" campaign for Motorola on July 9th, we called on the company to enact several actions to restore this company to its rightful spot of industry leadership. One of our suggested changes was replacing Ed Zander as CEO.

I have nothing against Zander. I know people who speak well of him and his time at Sun. I'm sure the last year has been tough on him and his family. However, it's a good thing for Motorola that he is leaving as CEO. Following many interactions with Motorola employees over the last 4.5 months, it's clear that they had lost faith in him.

Unfortunately, most I've spoken to have lost faith in most of the SLT -- perhaps save for Tom Meredith in Finance and also Legal (for what that's worth). Greg Brown, incoming CEO, is not well-liked.

I was concerned when he was appointed to the Board in August -- another insider added to a board with too many people and long-standing members already. Now, it's clear that the board had already decided back in the summer that Zander was not the man for the job. They were lining up Brown, while continuing to give him a few months more of seasoning.

Motorola has tried hard in the last few days to portray Brown as ready for the job. Several investors have said he's not the right person for the job... he doesn't have the "cachet" that some possible outsiders would.

I always advise clients that insiders statistically have a greater likelihood of success than outsiders. Therefore, if you've got a qualified insider -- more often than not -- you're better off with that person.

I don't think that fits here though. Although we'll have to see how Brown responds in the next 60 days, I don't believe he's the right person for the job for the following reasons:

1. Most people inside the company with whom I've interacted are not too fond of him. If he's their leader, they're not ready yet to follow.

2. Although he has a relevant background working at AT&T and Ameritech in the past, his resume seems lacking for this job. Micromuse was a small company, relative to Motorola. CEO experience at a much smaller company doesn't count as relevant CEO experience for this position. Senior leadership at a much bigger company would have been more comforting to shareholders.

3. Brown is as responsible for the current state of Motorola as Zander or anyone else. He's been on the earnings calls for at least the last year, doing his best to show Wall Street that he "gets" the need for urgency. He's used tough talk cliches ("no excuses") -- moreso than Zander and Meredith -- since they first missed at the start of the year, but performance has only gotten worse, not better. His elevation is a likely sign that Q4 is not going well. Check back on that in the 3rd week of January when they report results.

4. At least someone, somewhere tried to draw a comparison between Brown and Mark Hurd. The point was: both aren't flashy, so Brown should be able to replicate Hurd's results at Motorola as a result. Hurd under-promises and over-delivers. Brown has, so far this year, over-promised and under-delivered. Also, Hurd took a $2 billion company in NCR when he took over as CEO in March 2003 and grew it to $6 billion. Micromuse was much smaller when Brown was CEO. Micromuse was a different animal than Motorola. Despite the fact that Brown's been there for a few years now, he'll be learning on the job as CEO for a while.

Given all this, I agree with Carl Icahn that Motorola needs to be broken up now. With Brown in charge, and with the current board, Motorola shareholders would be much better off getting some value from the parts of Motorola, rather than keeping with the whole. Brown can endear himself to all Motorola investors by proactively taking this issue on now -- rather than being forced into this position if he waits another year and the stock slides below $10.

Finally, let the record show that Motorola would have been better off as a company if shareholders had elected Icahn to the board back in May. Shareholders were promised by Zander and Brown a turnaround once new handset models hit the market at the end of June; that didn't happen. Shareholders were promised by Zander and Brown a return to profitability before the end of the year; that won't happen. If Icahn had been sitting around the board table for the last 6 months -- holding directors' and management's feet to the fire -- shareholders would have been better off.

Let's hope Brown aggressively takes action to start to benefit Motorola shareholders. That would differentiate himself from his predecessor.

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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 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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Motorola's Financial Analyst Meeting Review

The Motorola Financial Analyst Meeting held last Friday in New York lasted 4.5 hours. Most of the comments from management offered few new details of what's to come in the months ahead. It was a lot of "we'll try harder" and "stay tuned." Most of the questions from analysts during the Q&A session afterwards were polite and very granular.

I thought the best question was the last one from Michael Regan, the analyst from Janus Capital:

"What's changed now versus what you told us 2 years ago?"

It really cut through all the painstaking (over-)explanations we heard. The Motorola Senior Leadership Team went to great lengths to say how things are really different now. More people within the company understand Days Sales Outstanding. Employees' attitudes are different. Therefore, results are going to be different. Greg Brown, the COO and new Director, also answered that Motorola's leadership had changed between now and two years ago. Well, in part it has, but Brown, CEO, Ed Zander, and CFO, Tom Meredith were all there before of course -- as was Stu Reed, the new head of Mobile Devices (in a different role).

Still, the big problem facing Motorola (and it was even more evident after the meeting on Friday) is what hasn't changed, rather than what has.

CEO Zander only spoke for a half hour on Friday -- less than half the time he allocated for his generals running the 3 company divisions. His introductory remarks and later answers in the Q&A tended to ramble and state the obvious (e.g., "We have to just have flawless execution"). They conveyed the troubling sense that the division heads had a better sense of the businesses than him.

Our "Plan B" Group for Motorola has criticized Zander previously for his over-simplifing or not articulating the company's strategy, as well as heavily using pet phrases like "Seamless Mobility" (he tried to clarify this phrase on Friday by saying "some of you might prefer to call it 'Broadband Internet'" - but that wasn't really that helpful). There was nothing in his Friday comments to dissaude us from the view that he is not comfortable sharing strategy. At one point, he stated that "profitable marketshare is our strategy."

This is a perfect illustration of Zander's biggest flaw as CEO -- and a key reason for why Motorola is undergoing its current pains. Zander is a short-term, tactical thinker. He responds instinctually, likes to joke (he introduced Reed to the analysts by imploring them to "take it easy on him") and schmooze. He appears to delegate the details of setting plans and executing them to his staff -- without necessarily a firm grasp on what is happening. When he arrived at Motorola and found a hot product with RAZR, he lurched to run with it. He trumpeted and supported growing market share. Now that the company has been humbled in the last year with low sales, he is promoting the pursuit of profits. Lurching is not leading.

As an investor, I was looking for a sense of vision and precisely how this company will win. Instead, we heard a lot of market segmentation and power of positive thinking.

Most focus during the morning meeting centered on new head of Mobile Devices, Stu Reed. It was an uneventful debut. After his hour-long careful discourse, investors were assaulted with "wave after wave" of repetitions of his theme that this was a company that had learned from its mistakes. It was a monotonous "drumbeat" of a speech, with an undeniable "cadence," describing how MDB would never again follow the siren song of a "one hit wonder."

Reed went out of his way to criticize the division's past leadership. Before Reed, according to him, Motorola's Mobile Business had the "audacity" to believe it knew what the customers wanted; now, it knows better to ask them. They are going to spend internally much better now ("We are done with the years of 'double spend,'" he said at one point -- referring to spending on the same features in different parts of the company.) They're also going to be more profitable by no longer "riding a hot horse for too long." Presumably, all these are shots at Ron Garriques - the former head of MDB. Yet, from February until his July appointment (according to the Q2 earnings call), MDB was co-headed by Zander, Brown, and Meredith (supported by Ray Roman and Terry Vega). By taking shots at Garriques, Reed was indirectly pointing the finger back at his CEO, COO, and CFO. "What's changed now versus what you told us 2 years ago?"

There were several positives from Friday's meeting. Multi-sourcing silicon, having a software strategy, and the draw downs of inventory are all positive for Mobile Devices. Tom Meredith does have a good grasp for this business and the focus he's brought to it with cash conversion is encouraging.

However, Friday's Analyst meeting was heavy on dissecting the "profit pools" (meaning the market segments) Motorola will compete in, commiting to assiduous R&D spending, and pledging to keep a clamp on costs. How will they raise revenues though and be successful in their markets? Wait and see.

In our opinion, changes at the top and at the board-level are still sorely needed for this company to more quickly move ahead. To really demonstrate to the Street and all investors that things have changed this time, Motorola needs to change its top leadership -- not in wholesale fashion, but certainly at the top. A new leader -- wisely chosen -- would truly bring new life and energy to this company to build on the early signs of progress.

HP didn't have to clean house when it shifted out Carly Fiorina and introduced Mark Hurd as CEO. I suspect the same thing would happen here. What Mark Hurd has clearly demonstrated is that a new CEO -- with the right focus, strategic vision, and operational discipline -- can take a company written off for dead and bring it back to the top of an industry. It can happen again here at Motorola, but not with Ed Zander. It's time for change.

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Two New Directors for Motorola: More Negative than Positive for Shareholders and Employees

Last evening, Motorola announced two new members of its Board of Directors, bringing the size of the group from 11 to 13 members.

The two new members of the board are Anthony Vinciquerra and Greg Brown.

Vinciquerra, 52, was named president and chief executive officer of Fox Networks Group, a primary operating unit of News Corporation that includes the Fox Television Network, Fox Cable Networks, FOX Sports and Fox Networks Engineering & Operations, in June 2002. Mr. Vinciquerra joined Fox in December 2001 as president of the Fox Television Network.

Greg Brown is Motorola's COO.

Breakout Performance's Take on these Developments:

1. Vinciquerra is a fairly good choice as an "independent" director, but lacks direct industry experience and his share ownership remains to be seen. In our draft "Plan B" for Motorola, we said that all directors should be substantial share owners and have experience in the markets in which Motorola competes. Vinciquerra will likely have few Motorola shares except what he's granted to begin with. It would be a positive sign, if he bought a substantial number himself to demonstrate his belief in the business. He's obviously had general business success in an area tangential to Motorola's core business. On the plus side, his "content" business at Fox is similar to the fickle fashionistic trends on Motorola's handset business. However, it's not clear he knows that business. It's certainly closer than if he came from the agricultural, pharmaceutical, or academic worlds, but he will obviously have a learning curve.

2. Brown's ascension to the board suggests the board is looking at him as Zander's replacement. This is troubling from 2 perspectives. Motorola's current problems are as much Brown's fault as Zander's. The company's operations obviously failed to deliver a successor line of phones. As COO, Brown wears that. It is confusing as to why the board would reward these mistakes with a promotion to the board. In our opinion, although it's always ideal to pick an internal CEO successor than an external one, an external one is likely needed here. It's my guess that, if the board did a full search of all internal and external candidates, they would find an external one superior to Brown. At that point, of course, Brown would likely leave the company (a la Mike Z.). Again the question is: why promote him in the first place to the board? The move is also troubling from a 2nd perspective as described next.

3. There are too many insiders on Motorola's board. The board now has 3 insiders: Zander, Brown, and CFO, Meredith. Meredith was initially an independent outsider, but is now clearly an insider - working closely with Zander (as any CFO must with a CEO). Although I believe him to be a professional who would try his utmost to provide an "independent" view at board meetings, 3 insiders is too many. The board needs to reduce this immediately. In our view, at a time when the current management team has under-delivered to shareholders, only the CEO needs to serve on this board - defending the status quo moves of management. The rest of the board should be outsiders with truly fresh perspectives (not decade-long tenures on the board) pushing managment. Adding another member of the management team to the board at this time, we believe, sends the message to shareholders that this board is committed to more of the same - not holding management's feet to the fire.

4. This board is too large. It now consists of 13 people. My research with Dartmouth Tuck School Professor Sydney Finkelstein has found that, when boards get larger, there is less discussion and debate. The larger group seems to inhibit more active discussion and "devil's advocacy." Instead, more "rubber stamping" of decisions put forward by the Chair/CEO/Lead Director occurs. No one would say Motorola needs more rubber stamping. We believe this board should have 10 or less members.

5. We stand by our previous arguments that directors who've served on Motorola's board for over a decade should leave. 4 of the 13 members of this board have been on this board for over 10 years. Lead Director, Mr. Scott III, is approaching his 15 year anniversary of his election to the board. This is too long for anyone to maintain an arm's-length view. If these 4 people left, the Motorola board would be down to 9.

On the one hand, we're happy to see some changes at the board-level, following our calls for change 2.5 weeks ago. However, on the whole, we believe this announcement is more negative than positive for Motorola's shareholders and employees.

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