ED ZANDER, MOTOROLA INC.’S CEO, will not appear at CTIA Wireless 2007’s keynote address on Tuesday next week, as originally scheduled.
He may well be hunkered down, working on The Plan to Save Motorola.
(Despite several days’ notice, neither CTIA nor Motorola could offer an explanation for the cancellation.) Perhaps the message is: I’m dealing with the nitty-gritty, no time for the stage and its requisite smiles.
Few seem to doubt that Motorola is capable of decking the competition. The question seems to be how and when. Pressure to reveal The Plan is ratcheting up. Quarterly results are due in mid-April and the company’s annual shareholders’ meeting is May 7.
A clear, positive message about Motorola’s sales prospects and new products and flexibility in improving both is needed now, according to two analysts. Even then, Zander’s message could be over-shadowed by investors’ focus on irrefutable metrics, such as the handset vendor’s first-quarter margins.
So far, The Plan appears to include lowering expectations-see CFO Dave Devonshire’s recent, repeated use of the imprecise term “rocky” to describe the next few quarters-and pleading for patience, as Zander did before a Goldman Sachs audience earlier this month.
But analysts said the CEO of Motorola needs to be more explicit about The Plan.
“Investors need clarity now,” said Tero Kuittinen, analyst at Nordic Partners Inc. “Everyone knows this will be a crisis-management summer. But what does that mean to Zander? He has to find a way to convince investors that he’s flexible in making a turnaround.”
Carl Howe, analyst at Blackfriars Communications Inc., agreed.
“He’s got to generate excitement and prove that it’s not boring, old Motorola,” Howe said. “Talk about what’s in your pipeline. Give one or two teasers and tell everyone you can’t say more.”
“This is a test of ‘his’ Motorola,” Howe added. “If he handles it well, it’ll continue to be ‘his’ Motorola.”
Past hindering Zander’s future
Zander’s ability to articulate The Plan, however, is somewhat limited by his past bullishness on prospects that didn’t pan out, Kuittinen said. That bullishness extended to the value of low-end products, the benefit of market-share gains and the efficacy of the Razr phone platform. But the company failed to make solid margins on entry-level products, market-share gains came at the expense of profits and the Krzr has officially flopped, the analyst said.
“There will be a lot of interest in Q1 results,” Kuittinen said. “Investors will look more closely at the numbers than they will listen to Zander’s messages-particularly since there was so little communication from Motorola to prepare everyone for margins that slipped below 5 percent in the fourth quarter. The ‘fear factor’ is: could Motorola’s margins flatline?”
Part of the solution will require marketing, as Zander has indicated to his Goldman Sachs audience. That means that the CEO’s message needs to be matched by a program from his chief marketer, Kenneth “Casey” Keller.
“The tenure of a chief marketing officer is about 18 months these days,” Howe said. “I’d expect to see something from him soon.”
Icahn factor
Then there is the Carl Icahn factor.
As for Carl Icahn’s influence, that depends on how many shares he owns, Howe said. Icahn recently increased his stake in Motorola from 1.4 percent in January to a nearly 2.4 percent stake in March, and demanded that the company accelerate its stock buy-back plan, using more of its $11.2 billion in cash reserves. The company has a buy-back program under way and has accumulated some $4.7 billion worth in less than two years, with plans to buy another $3.8 billion worth during the next two years. Motorola has officially advised shareholders to not vote for Icahn.
Zander could make a gesture by adopting Icahn’s plan, said Howe. But that doesn’t address the need for innovation and a refreshed portfolio. “It doesn’t matter who has the gun to your head,” Howe said. “These things take time. There’s always short-term pressure to do something dramatic-and rash-like a merger or acquisition.”
But, Kuittinen said, pressure is not a universally negative force. “They took a big risk with a big payoff when their back was against the wall, with the Razr project,” Kuittinen said. “Maybe they’ll get more adventurous. We know they’re capable of that. Other handset vendors’ hits have been derivative designs. For the last five years, Motorola has had the most innovative products, even besting Nokia. That’s an achievement.”
