Motorola Trying to Recapture 'Razr' Edge

Business Materials 6 January 2008 02:45 (UTC +04:00)

New Motorola Inc. CEO Greg Brown doesn't have the secret weapon his predecessor Ed Zander possessed when he arrived at the cell phone maker four years ago -- the Razr. But that could be a good thing -- if Brown, who took over Tuesday as chief executive, applies lessons learned from Motorola's nasty fall last year.

The then-up-and-coming Razr ultimately proved Zander's undoing. It propelled the Schaumburg, Ill.-based company to lofty sales levels it couldn't sustain without cutting prices aggressively, a decision that had harsh consequences.

The once-soaring company is now thought to have only broken even for 2007. It pulled back from some developing markets and cut 7,500 jobs last year, creating a leaner company that analysts say has halted its free fall in market share and profitability, and laid the groundwork for a promised turnaround.

"People might think Motorola's out of the game entirely," said Neil Strother, a wireless analyst in Seattle for Jupiter Research. "They're not out of the game, they've just had a few bad quarters."

The Razr remains a solid seller, but rivals' newer phones have taken away its buzz. And Brown, 47, who was promoted from chief operating officer and earlier ran San Francisco-based software company Micromuse, doesn't appear to have a killer product to unveil at the Consumer Electronics Show that opens Monday in Las Vegas.

Such a blockbuster announcement from Motorola is likelier at the big wireless shows -- in Barcelona in February or Las Vegas in April. But nothing the company is known to have in the pipeline seems likely to match the Razr's popularity.

While putting its financial and operational house back in order, Motorola must regain ground lost to industry leader Nokia Corp. and Samsung Electronics Co., which overtook Motorola as the No. 2 cell phone manufacturer last year.

"The challenges for Greg Brown are very similar to those that were faced by Ed Zander: to work on innovation and new products," said Hugues de la Vergne, principal analyst with market research firm Gartner Inc. in Stamford, Conn. "A more steady stream of innovative new products from the likes of Samsung and Nokia have allowed them to build nice market-share gains at Motorola's expense."

The company's share of the global market for mobile devices collapsed from 23 percent at the end of 2006 to 13 percent within six months and hasn't moved significantly since. Mobile devices account for two-thirds of Motorola's sales.

Motorola "milked the Razr phone cow for too long," said Morningstar analyst Jordan Zounis, and it's still paying the price. Zounis sees strength in the company's mid-price products, including its revamped Razr line and new multimedia phones, but weakness on both the high end -- with only the Motorola Q smart phone -- and low end.

That could mean Brown has to produce another hit soon.

Stockholders may have been temporarily placated by the company's shake-up but remain displeased by the roughly 40 percent drop in the stock's value from its six-year high of $26.30 in October 2006. Carl Icahn, the billionaire financier who lost a bid in May for a board seat from which he wanted to force some changes, hailed Zander's resignation in November but said then that Motorola still has "major problems."

"Brown has about nine months to show the new and improved Motorola," Zounis said Wednesday. "Otherwise, I think the callings of individuals such as Carl Icahn will perhaps have a little bit more weight next time around."

Brown is likely to be judged negatively unless he can improve results from its trademark handset business -- even if Motorola's emergency radios, TV set-top boxes, wireless network equipment and other lines show strength.

"If Motorola stays with the same portfolio of handsets they're going to have trouble, because the market is evolving," said Standard & Poor's analyst Todd Rosenbluth. ( AP )