Greg Brown, CEO of Motorola Inc. since Jan. 1, was set to participate today in a “fireside chat Q&A session” at Morgan Stanley Technology Conference in Dana Point, Calif.
The session will be Web cast live beginning about 11 a.m. Pacific time.
Presumably, the Q&A format means that Brown will answer a number of pressing questions on the minds of investors large and small. That the “chat” will be “fireside” may help – the climate for the company has turned chilly.
Motorola revealed last week in its annual report that its dependency on the U.S. market – where in recent years it has held more than 35% market share – is growing sharply. The company said 46% of handset sales in 2007 were in the U.S., vs. 35% the prior year. Its global market is shrinking rapidly. And, as the U.S. economy cools, that home market could weaken further.
Strong Sprint Nextel ties
Motorola’s single largest customer in the U.S. is the ailing Sprint Nextel Corp., which just wrote off a nearly $30 billion loss in the fourth quarter over its Nextel acquisition. Motorola supplies the bulk of iDEN handsets for that service.
But the American handset maker’s problems are more fundamental, according to analysts, and go to the heart of its business. A post-Razr platform that could compete with endless waves of innovative products from other top handset makers is missing in action.
“At this point they need to start talking about timetables,” said Tero Kuittinen, analyst at Avian Securities, L.L.C. “At this point, even bad news is better than no news. Set some kind of floor here. Tell us, for instance, whether the new platform will be out by Christmas. Otherwise, people will start thinking they’re going to miss the whole year.”
Analyst Mark McKechnie at American Technology Research, which recently downgraded Motorola’s stock – which hovered around $10 Friday, near the bottom of its 52-week range – said part of the problem may be corporate culture and direction.
“They’re kind of rudderless,” McKechnie said. “In Barcelona (at the Mobile World Congress), for instance, they said they are cutting back on the number of operating systems they support. I heard all this in 1997. They’re making the same mistakes they made 10 years ago.”
What Brown brings
Brown’s pronouncement that he personally would lead the company’s mobile devices division has met with some skepticism and his hosts today may seek more substantive news.
“The key problem here is that they needed to get a new platform out last week,” Kuittinen said. “I don’t see how one guy is going to speed up the process. A lot of key decisions on the new platform were made a year or two ago. It’s not like someone can waltz in now and make things happen.”
“In terms of the new platform, if they’re having trouble integrating software and display technology, for instance, this is not something that can be solved in a couple of quarters,” the analyst continued. “Everything now hinges on: how big is the delay? Nobody outside the company really knows much about that. There are signs that the software development problem is bigger than anyone realized.”
Market data aside, Motorola itself has cast uncertainty over the future of its bread-and-butter handset business. Shortly after assuming his new CEO post, Brown announced that the company would explore options for making its handset business a standalone entity, even selling it. Soon after, Motorola hired Paul Liska, a new chief financial officer with background in private equity – raising possibilities that have yet to materialize.
“I take that as a strong signal that they want to do some horse trading,” McKechnie said. “But it’s all talk and no action yet.”
“Now is not the right time to sell (the handset division),” McKechnie added. “They’d be selling near the bottom. There’s a lack of compelling product news and shrinking availability of private equity. They’ve got some neat products on the way, but it looks like they’ll struggle to get them out in a timely manner, given this distraction.”
Network speculation
Both analysts said that a Motorola-Nortel Networks deal on network equipment made sense and that the parties probably are actively talking about it. But a handset deal is less certain, though speculation in the media has focused on Chinese vendors Huawei and ZTE. Japanese vendors, facing a static domestic market, might conceivably take another whack at global expansion with a Motorola deal, Kuittinen added.
“ZTE and Huawei might be an interesting fit because they’ve focused on the low-end of the market with successes in places like India,” Kuittinen said. “It might save them a lot of time and trouble tapping into Motorola’s distribution network in emerging markets. At the high-end they could obtain engineering talent and IPR. Japanese vendors are a possibility too.”
Meanwhile, the company’s shrinking global market share and lack of new products may imperil its negotiating leverage with component vendors and lead to an exodus of key personnel, both analysts said.
Motorola’s global market share could drop below 8% this year – it was over 22% in 2006 – and erosion of its domestic market share, already reflected in market data from NPD Group, is “the big threat,” according to Kuittinen.
In the short-term, Motorola faces pressure from activist investor Carl Icahn, who seeks four seats on the company’s 13-member board and an annual shareholders’ meeting typically held in May.
“They certainly want to move the ball down the field in time for the annual shareholders’ meeting,” McKechnie said. “I would hope, personally, that if they don’t have a deal in hand for the handset division, that they polarize it. Say, ‘OK, we’re done looking,’ and then commit like a billion dollars to turn this thing around.”
