Turning around Motorola Inc. will be akin to making a K-turn in a stretch limo on a frontage road.
You gotta downsize to a vehicle that’s easier to maneuver. Many passengers will have to get out, while new navigators are needed to ride shotgun. You risk a collision while you complete the ponderous maneuver. (Traffic and potholes are everywhere.) And you’re expecting your new vehicle to morph into two, both certified for the road.
That’s a tall order, analysts said last week.
The former No. 2 global handset vendor – now languishing perilously close to the bottom of the top-tier, multinational vendor list – has apparently made difficult decisions essential to forward progress. With a roadmap in hand, the presumption is that the company can return to the highway and put the pedal to the metal.
Software strategy
For instance, co-CEO and handset division chief Sanjay Jha, who took the handset reins this summer, signaled that the company had to couple its hardware talents with a new software strategy focused on the user experience.
But the facts are daunting and the company’s plans are unfolding in a hostile environment.
Motorola said last week that it would cut $800 million in operating expenses and 3,000 more employees (nearly 5% of its workforce, the majority reportedly in its handset division). It has settled on Android and Windows Mobile to power its new high-tier handsets. Some products in the pipeline for early next year will not see the light of day.
Thus the turnaround will take time – many if not most analysts are citing 2010 – and that must come before the company can realize its plans to split into two publicly traded companies.
As a result, Global Crown Capital L.L.C., for instance, cut its outlook on revenue and earnings for the company for 2009. Analyst Tero Kuittinen cited the “shocking magnitude” of Motorola’s 15% decline in revenue and “disastrous” handset shipments of 25.4 million, down 30% from the year-ago quarter and a sequential decline as well.
“We expect Motorola to deliver another sequential decline and crash to 24 million units during the Christmas quarter as it pulls back from European and Southeast Asian markets that seem to have turned hostile to its brand,” Kuittinen wrote in a note to investors last week. “We believe there’s a clear chance Motorola’s volumes will decline below 20 million units in first-quarter 2009, which would mean substantial losses even with aggressive cost-cutting measures.”
“The outlook is disappointing and hope for a 2009 turnaround has dimmed,” agreed analyst Ittai Kidron at Oppenheimer. “Motorola is retrenching its handset group again, a process that would take at least a year to complete. This is needed, but it comes at a difficult time with both the macro economy and strong competition stacking the deck against it.”
Motorola’s retrenchment to its home market in North America is ill-timed and increasingly perilous, added Kuittinen.
“North American carriers seem busy selling large touchscreen devices and services such as push e-mail,” Kuittinen wrote. “We believe there is nothing Motorola could offer to North American carriers in the near term to stem the sharp market share losses that now threaten to kill an American icon.”
