Thursday, January 31, 2008

Motorola: the first shall be last

A couple of days ago I got a tip from a reader about the silly rumor being spread by a Nomura analyst that Motorola was going to dump its handset business. The rumor was tremendously successful for getting publicity for Nomura and the analyst (Richard who?) but the speculation seemed over the top. Perhaps the rumor was planted by competitors hoping to undercut Motorola.

After all, Motorola invented the handheld cellphone business 30 years ago, has been a consistent #2 or #3 for decades, and handsets account for half of its revenues. Without cellphones, they’d have no consumer brand. This sort of radical change requires an outsider, not a handpicked inside successor like CEO Greg Brown.

About the only thing I could say good about the idea is that at one point, IBM exiting the PC business would have seemed equally ludicrous a decade ago — before they bailed out in 2004. Kevin Maney also notes that Motorola [like Intel] dumped the RAM business when the Japanese competition got brutal.

So I was getting ready to write about this silly idea, and then I saw the (online) front page of Friday’s WSJ, and then CBS MarketWatch. After dropping 40% this year, Motorola stock is up 10% on the possibility of spinning off the money-losing cellphone business. Even if the speculation is getting legs, as with earlier this week the headlines are exaggerated and misleading:

To Spin Off
Handset Unit,
As Icahn Waits

Motorola Inc., facing pressure from activist shareholder Carl Icahn, said it may spin off or sell its flagship handset division.
OK, journalists — what’s wrong with this picture? “To spin off” != “may spin off”.

I still think the answer to Motorola would be to fix the underlying problems. Some say a major problem is being utterly clueless on software — due to management, not engineering talent. (Some of the iPhone engineers are Motorola alumni). Even if Apple (or Microsoft) has an unfair advantage in software, certainly Nokia has done a better job than Motorola of shifting from cellphones as blocks of silicon to software-controlled digital devices.

Yes, the US is a brutally competitive handset market. LG and Samsung get almost no competition in their home market, and Nokia is not seriously threatened in Europe.

Still, Motorola has great North American distribution and brand, and doesn’t have to compete with Nokia or Sony Ericsson in CDMA. They once had an industry-leading innovative culture.

On the other hand, this is the same Motorola (under Ed Zander) that killed their top software lab in Urbana-Champaign. Fortunately, Yahoo saw the value of the team and hired them away. Hopefully they survived this week’s Yahoo layoffs. Update Friday 9am: If Microsoft succeeds in buying Yahoo, I’m certain they’ll keep the Urbana-Champaign talent.

Clearly MOT will never be a cost leader. If you don’t want to pay for R&D, then you can’t be an innovator, which doesn’t leave much else.

A decade ago, a bunch of stupid Asian PC makers bought losing American PC makers to gain market access: Samsung bought AST and NEC bought Packard Bell. Both turned out badly. But these were 2nd tier players. So I don’t know what companies would have enough money (or optimism) to buy the Motorola business.

1 comment:

Anonymous said...

Motorola to Explore Structural and Strategic Realignment of its Businesses to Enhance Shareholder Value

Company will evaluate alternatives to accelerate the ability of its Mobile Device Business to recapture growth and profitability in an expanding global market

SCHAUMBURG, Ill., – January 31, 2008 – Motorola, Inc. (NYSE: MOT) today announced it is exploring the structural and strategic realignment of its businesses to better equip its Mobile Devices business to recapture global market leadership and to enhance shareholder value. The company’s alternatives may include the separation of Mobile Devices from its other businesses in order to permit each business to grow and better serve its customers.

“All of our businesses have exceptional people, products and intellectual property and the ability to achieve category leadership in their markets,” said Greg Brown, President and Chief Executive Officer. “We are exploring ways in which our Mobile Devices Business can accelerate its recovery and retain and attract talent while enabling our shareholders to realize the value of this great franchise.”

The company does not intend to discuss developments with respect to the exploration of strategic alternatives unless or until its Board of Directors has approved a definitive transaction or the process is otherwise complete. There can be no assurance that any transaction will occur or, if one is undertaken, its terms or timing.