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Zander: Moto knows what to do: Profits over market share, re-energize portfolio and marketing

ED ZANDER, MOTOROLA INC.’S CEO, is under pressure. And it shows.
The first statement is a widely recognized fact and the second is an impression-but both were palpable during Zander’s appearance via an audio Webcast last Thursday at Goldman Sachs’ 2007 Technology Investment Symposium in Las Vegas.
Zander often sped past direct answers to questions from the moderator and audience with brisk and somewhat disjointed explanations of the company’s plans. Confident statements that he and his executives grasped the company’s challenges were often interspersed with pleas to analysts and investors for understanding the difficulties of, in essence, making a U-turn in a company that is more like a Humvee than a BMW.
“It’s a hard business to stay on top of your game quarter after quarter,” he said early in the presentation. “You

have to have an almost maniacal focus.”
Later in the hour-long session, he said, “We gotta get back to work and earn back your respect. It’s not easy.”
Twice during the session, Zander sighed audibly, once after alternately bemoaning Apple Inc.’s iPhone pre-launch publicity and then praising the product. He also grew combative at times, without prompting from the audience or its questions.
Zander’s apparent difficulty in giving simple, direct answers to questions about the vendor’s plans and goals and timing may well stem from his self-described, hectic schedule in the wake of dismal fourth-quarter earnings and the departure of his top lieutenant, Ron Garriques, from the leadership of Motorola’s bread-and-butter mobile devices division.
(Motorola pulled back the curtain on Garriques’ departure by revealing last week to Crain’s Chicago Business that due to “growing concerns about execution in the mobile devices business . Motorola did not make a counteroffer to retain Mr. Garriques.”)
Zander’s absence at the 3GSM World Congress was due to a board meeting, he said. And he would be back at work at Motorola’s headquarters in Libertyville, Ill., after this presentation.

Ed’s back-seat driver?
Zander did not mention-though his performance seemed to reflect-concerns that he may have a backseat driver while attempting that U-turn. Carl Icahn, the billionaire investor, notified Motorola he may expand his current 1.4-percent stake in the company as he seeks a seat on its board of directors. A notice to Motorola appeared to reflect that four separate Icahn-controlled entities each may purchase as much as $500 million in Motorola stock, which could total as much as $2 billion in stock.
That board will be comprised of 11 people, rather than the typical 13, when Motorola holds it annual meeting on May 7-two members stepped down last week. Indra Nooyi joined the board in 2002 when she was chief financial officer at PepsiCo Inc. and has been named CEO and chairwoman, a fact she cited in resigning her Motorola seat. The other director, H. Laurance Fuller, is retired co-chairman of BP Amoco Plc, and plans to retire one year early from his seat, which he has held since 1994.
Zander managed to get across a few messages, sprinkled with color. Motorola henceforth will focus on achieving a profit on every device sold rather than relentlessly pursue market share, he said.
“It’s not about market share anymore, though that’s fun,” Zander said. “You can’t win by selling more units. We’re actually going to turn down some deals. It’s important to return to profitability. You can make money in the low end.”
The company needs to refresh its portfolio and pursue 3G markets to raise average selling prices and margins in order to generate the profits needed to invest in developing distribution channels in emerging markets. Meanwhile, it will squeeze cost savings from the design of each of the handsets in its low-end portfolio to improve gross margins. Marketing must be re-energized, a heads-up to Moto’s new chief marketing officer, Kenneth “Casey” Keller.

The ‘wow’ factor
One audience question referred to a Goldman Sachs study that revealed brand and design were key to profitability.
“I spend a lot of time in stores” including the Nokia Corp. store on Michigan Avenue in Chicago, Zander said. “We still have the brand and the iconic ‘wow.’ We know what we need to do.”
Zander sighed audibly. The moderator pointed out that Sony Ericsson Mobile Communications L.P. earns decent margins at the market’s high end and Apple Inc. may too.
“Let’s see the product for goodness’ sake,” Zander said, clearly exasperated. “It’s like waiting for a baby.”
A moment later, Zander volunteered a brusque suggestion to his audience.
“You won’t like what I’m about to say, but you spend too much time in the U.S. Touchscreens have been in use in Asia for years. [The iPhone] is the Apple UI, a Mac-patched phone in your pocket.”
Zander paused. “I’m sure it’s a great phone,” he added. Then he sighed audibly.
“When you talk Apple, don’t think that Nokia, Samsung and Motorola won’t have cool phones to respond. I hope Apple’s 10 percent (U.S. market share goal) goes to 20 percent.”
Zander attempted to assure his audience with the familiar mantra that “good things are coming” in Motorola’s product lineup this year and he apparently brandished a number of the vendor’s newest devices to illustrate that “we still have the best product lineup in the U.S.” But, perhaps disconcerting to his audience, the Motorola CEO also resorted to extolling the virtues of the Razr’s continued sales success, while acknowledging the effect that the discounted product had had on Motorola’s profits.
“I still think the Razr as we know it today can make more money,” he said.
The CEO said that 3G applications such as games, mobile TV and micropayments would draw consumers to 3G offerings “maybe in ’07, probably ’08-’09.” He touted WiMAX’s disruptive potential, acknowledging that some carriers would fear and fight it, but that “we’re going to figure this thing out” and that the technology is a “2008, ’09, ’10 bet.”
When the Goldman Sachs moderator ended a brief question-and-answer period to close the session, Zander did not disguise his pleasure at the chance to return to Libertyville and the real work ahead.

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