Subject: [NEXTEL-1] The Z-Man of S-Burg.

From: Marcel <[email-masked]>
Date: Wed, 09 Apr 2003 02:40:50 -0400

APRIL 14, 2003

INFORMATION TECHNOLOGY

Can Mike Z Work More Magic at Motorola?
Having revitalized the cell-phone unit, COO Zafirovski must now do the same for
the rest of the company

Mike S. Zafirovski had sobering news to deliver. Within 30 days of his
appointment last July as chief operations officer of
Motorola Inc. (MOT ), Zafirovski, say current and former executives, met with
managers and delivered a stinging message:
Motorola is not as good as it thinks. Zafirovski candidly graded each of the
businesses in areas ranging from market share and
profitability to customer satisfaction -- some B's and C's, and even some D's.
But he expected straight A's.

Zafirovski had little time for niceties. On July 25, his predecessor, Edward D.
Breen Jr., had bolted for the top job at troubled
Tyco International Ltd., sowing distress at Motorola. Under Breen and CEO
Christopher B. Galvin, Motorola was beginning
to rebound from a dismal 2001, when it lost $5.8 billion. Breen, who declined to
comment for this story, symbolized the sort of
urgency and go-get-'em toughness that Motorola had lost over the years. He
helped Galvin implement a cost-cutting program
that shuttered U.S. manufacturing plants and will eventually shed more than a
third of Motorola's 150,000 workers.

When Breen left, Galvin and the board promptly tapped Zafirovski, who had come
to Motorola from General Electric Co. two
years earlier. Known widely as Mike Z, he had hoisted Motorola's flagship
cellular-phone business from the red in 2001 to a
nearly 7% profit margin last summer. "Mike Z's leadership style is the best I've
seen at energizing a broad-based organization
while driving it to make the tough, but right, decisions," says Galvin.

Together they have steered Motorola toward recovery. Its balance sheet is
strong. And after six quarters of losses, Motorola
returned to profitability in the third quarter of 2002, ahead of rivals such as
Lucent Technologies (LU ) and Sweden's LM
Ericsson (ERICY ). And Zafirovski, with his lunch-bucket operating style, has
complemented Galvin's big-picture focus.

It will take every last drop of turnaround magic, however, to bring
once-dominant Motorola back to full strength. While the
cell-phone unit has improved, its 17% market share leaves it a distant second to
rival Nokia Corp.'s (NOK ) 38%, according
to Deutsche Bank Securities Inc. Moreover, Motorola has lost its lead in
communications chips to Texas instruments Inc., says
Gartner Inc. And the wireless-networks business finished 2002 in the red and has
gaping holes in its product portfolio. While
Motorola's other units eke out profits, they account for less than a third of
the company's $26.7 billion in revenues. "He has a
big job," says Kevin Rendino, senior portfolio manager of the Merrill Lynch
Basic Value Fund, which holds nearly 11 million
Motorola shares. "This is a training ground to see if he's capable of running an
entire business."

The good news for Mike Z? In the sputtering businesses in which Motorola
competes, the company doesn't have to rocket to
riches or blow by the likes of Nokia. Zafirovski and Galvin can succeed by
achieving modest goals that appear within reach:
10% top-line growth and profits boosted by smoother operations. How to get
there? "By gaining market share across the
board, and [driving the] brand," Zafirovski told BusinessWeek.

That doesn't mean investors are thrilled. Many view Motorola as a conglomerate
bogged down in slow-growth industries, and
they're pushing for a divestiture of the struggling telecom-equipment business
or a spin-off of the semiconductor division. Galvin
shopped the equipment business last year and found no buyers. And he shows no
sign of spinning off chips. With little prospect
of a strategic fix, investors have driven down Motorola's stock 42% in the past
year, to $8.35, keeping it in step with
beleaguered telecom rivals. "They've made a lot of progress in cutting costs,"
says Tony Kim, an analyst at Credit Suisse Asset
Management, which owns Motorola shares. "But it's not enough. They need to do
more."

Zafirovski has plenty to keep him busy on the operations side. Borrowing from
the playbook of Jack Welch, his old boss at
GE, Zafirovski endorses Galvin's plan to weed out the lowest performing 10% of
managers. He has pushed for employee
bonuses based on profitability and cash flow. And he's "very focused on the
customer," says Greg Santoro, vice-president of
Web services at Nextel Communications (NXTL ), one of Motorola's biggest
customers. The company's first quarter results,
due Apr. 15, are likely to show net income of $70 million vs. a $174 million net
loss, excluding charges, the year before,
according to Bear, Stearns & Co.

Zafirovski's driving ambition was apparent from a young age. When he was 16, his
parents moved the family from the
then-Yugoslavian region of Macedonia to the west side of Cleveland, where they
found factory work. Despite knowing only a
few English words when he started school a few days after arriving in the U.S.,
Zafirovski spent three weeks mastering a
15-minute presentation to his American history class about his native country
and received a standing ovation.

He shows the same dedication to fitness. At last year's Ironman competition in
Lake Placid, N.Y., he finished 9th among men
over 40, ending the grueling running, biking and swimming race in 13 hours and
37 minutes. He then flew to Chicago late that
night and reported to work hours later for Day One as COO.

Zafirovski earned plaudits at GE by turning around the lighting business in
Europe -- a job that called for shutting down several
plants in Hungary. "He never missed," says Welch.

That experience came in handy when he moved to run Motorola's ailing cell-phone
division in 2000. He promptly reduced
Motorola's offering from 128 different phone types. Today fewer than 20 remain.
He slashed operating expenses by 14%, to
$3.1 billion, Deutsche Bank says. When managers told him that relations with
customers were improving, Zafirovski demanded
proof. Says a former manager of Mike Z's style: "Make the numbers or your ass is
grass, and he's behind the mower."

Still, Motorola is miles behind Nokia. With a lead in multimedia phones, the
Finnish company's margins in handsets reached
24.7% in the fourth quarter, far above Motorola's 9.1%. Zafirovski's goal is 15%
margins, but first-quarter margins are
expected to drop to 6%, according to Bear Stearns. "I don't know if the targets
are realistic," says Bear Stearns analyst
Wojtek Uzdelewicz.

If only Zafirovski's challenges stopped with wireless. Motorola's $5 billion
semiconductor division faces an uphill slog. After
reorganizing, closing several plants, and introducing new products, the unit is
expected to boost revenue by 15% in 2003 to
$5.5 billion and turn a $300 million profit, says Bear Stearns. But Motorola is
in a tooth-and-nail fight with TI (TXN ) and
Qualcomm Inc. (QCOM ) for the lead in the wireless chip market. And Intel Corp.
(INTC ) is now invading the wireless
space with chips that even Motorola's phone unit is buying.

Hard-pressed to sell the networking unit, Motorola is investing in the business.
It's pumping money into honing the software
that serves as the brains for switching cell calls. It's developing
Internet-based gear that it hopes will position the division for
next-generation telecom systems. And the company is focusing on those few
markets where it has thrived, such as China.

For the moment, Zafirovski's own report card is marked incomplete. The
wireless-phone business is well on track toward
recovery, but huge challenges remain in wireless infrastructure and
semiconductors. Now it's up to Mike Z to pull off those
straight A's.

By Roger O. Crockett in Chicago, with Andy Reinhardt in Paris

http://www.businessweek.com/magazine/content/03_15/b3828060_mz063.htm

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