Is Motorola the Next Sun? Thanks to Ed Zander

By Maureen O'Gara	Article Rating:
December 3, 2007 04:15 PM EST	Reads:	20,165

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Since Ed Zander led Sun into the valley of the shadow of death back – what? – over five years ago now, it has never recovered. And there’s a good chance the same thing may happen to Motorola.

With a year left to run on his contract, Zander quit yesterday – and clearly not a moment too soon given the events of the last year or so. There are people who would have gladly ridden him out of town on a rail months ago and it’s assumed he’s resigning now to avoid getting fired.

Zander, whose telecom experience consisted of answering the phone, was brought in four years ago to narrow the lead in phones between a first-place Nokia and a second-place Motorola.

Motorola is now in third place, losing ground to both Nokia and Samsung, its market share sheered from 20.7% a year ago to 13.1% now.

When Eddie got to Motorola in January 2004 he lucked out and rode the tsunami created by the company’s new Razr phone, an invention of the ousted hereditary Galvin administration.

Razr sold a phenomenal 110 million units, more than any other cell phone in history. Motorola’s stock price was close to doubling by last October.

However, with Eddie in charge Motorola’s well of ideas went dry. It couldn’t come up with a follow-on, giving Apple, a computer company you might say, the opportunity to dictate what the next-generation of phones should look like, that is unless Google and its Android cotillion up and waltz away with the vision thing.

Motorola also hasn’t exploited its acquisition of Good Technology, whose enterprise e-mail software competes with RIM and its Crackberry.

Without a hot Razr replacement, Motorola in its last quarter last year sold cell phones at a loss to maintain market share. By January it had to drop its earnings forecast. That ushered in activist shareholder Carl Icahn and a bitter proxy battle over a board seat that Zander only narrowly won last spring.

Zander promised that Motorola would at least have a profitable year and started cutting costs. The company has so far canned 5,000 of the 7,500 people destined to get pink slips, including half the executives in its cell phone unit. However, though Moto returned to profitability at the end of October its fiscal third-quarter earnings were down 94% and with Zander handing in his notice yesterday it’s widely suspected his turnaround is a flop.

Boards don’t let CEOs go in the middle of a successful turnaround.

Enter Zander’s handpicked successor, Motorola president and COO Greg Brown, a guy who’s held those titles since March, basically as heir-in-waiting.

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His reception has been tentative; Motorola’s stock rose all of 32 cents Friday. There’s concern that being close to Zander his appointment means more of the same. And Brown doesn’t have much more telecom experience than Zander. The market would have had more confidence in an outsider with a brand name, but miracle workers are in short supply.

Brown joined Motorola in 2003 from Micromuse, the network management software where he was CEO before IBM bought it.

At Moto Brown was instrumental in its $3.9 billion acquisition of Symbol Technologies, the Long Island barcode scanner and handheld computer people, and in Motorola’s $1 billion divestiture of its flagging automotive electronics unit.

His credentials suggest he might put more effort into Motorola’s $8 billion enterprise mobility arms. However, Brown indicated his top priority is to fix Motorola’s broken phone business, responsible for roughly half of the company’s $39 billion a year in sales.

Its sales are now down 36% and it ran a $138 million operating loss in Q3, not as bad as the $264 million it lost in Q2.

Then of course there’s the little matter of Moto’s stock being down 40% to roughly about where it was when Zander took over.

Brown’s recovery plans are supposed to be unveiled early next year after Zander’s resignation takes effect January 1.

Icahn, who’s upped his stake in the company to about 3%, issued a statement yesterday saying that Zander’s leaving was “long past due” but doesn’t “even begin to address the major problems at Motorola.”

He thinks it should be split into four separate companies: “a mobile devices company, an enterprise mobility company; a connected home company and a company focused on mobile networks infrastructure” and he thinks the mobile devices’ business should be standalone.

The Wall Street Journal, whose front page last April quoted Zander as saying “I love my job; I hate my customers,” says private equity firms have approached Motorola regularly this year about buying the company or part of it, offers Sun would dearly appreciate long about now.

Zander will remain chairman until the stockholders meeting in May then step down from the board. He’ll be an adviser to the new CEO until his contract runs out on January 5, 2009.

He will draw his pay next year but because he’s stepping down voluntarily he misses out on a possible $35.6 severance package for getting fired. However he’s still going to see about $16 million.

It’s unclear how involved Zander’s been in Motorola lately. He said yesterday he has been negotiating his departure with the board for the past few months. And interim CFO Tom Meredith, Dell’s former CFO drafted off Moto’s board, seems to have been calling a lot of the shots lately. Meredith claims the mobile phones unit will return to profitability next year.

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