Subject: [NEXTEL-1] WSJ - Motorola Shows Signs of Life

From: NEXTEL-1
Date: Tue, 27 Jul 2004 12:50:30 -0400

WSJ - Motorola Shows Signs of Life
7/23/04

Six months after Ed Zander took the helm of Motorola Inc., the
beleaguered telecom-equipment maker is beginning to show signs of
righting itself after years of decline.

Motorola's popular flip-top phones, with the company's distinctive
"batwings" logo, drove a 41% surge in revenue in the second quarter --
at a time when Nokia Corp., the world's leader in cellphone sales, is
stumbling.

Motorola, Schaumburg, Ill., has high hopes for a sleek phone called the
A630 that flips into a keyboard for messaging, due out later this
summer. To help shed its stodgy image, the company recently hosted a
party to launch the phone on the roof of a hip Manhattan hotel that
counted "Sopranos" actress Drea De Matteo among the guests.

But now comes the hard part for Mr. Zander, the former No. 2 atSun
Microsystems Inc.: convincing the market that the turnaround is for
real.

Despite the spate of positive news, Motorola's stock continues to
languish. Its shares on the New York Stock Exchange closed yesterday at
$15.61, down from as high as $20.72 in late April. The split off last
week of Motorola's ailing semiconductor division, Freescale
Semiconductor Inc., in an initial public offering garnered about $1.6
billion, far less than expected.

The 57-year-old Mr. Zander, known for his high energy and salesmanship,
acknowledges his task is nothing short of changing the company's
culture.

"Motorola is in the middle of a transformation," says Mr. Zander, who
became chief executive and chairman of the 76-year-old company in
January. "We are on a journey here and hopefully shareholders will
understand that and be rewarded."

For decades, Motorola dominated the world of communications, until the
late-1990s when Finland's Nokia, Samsung Electronics of South Korea and
others emerged to snatch market share in everything from cellphones and
semiconductor chips to set-top boxes for cable television and other
wireless gear.

It was a painful descent for the once-proud company, which became an
American icon with its car radio and the device that carried astronaut
Neil Armstrong's first words from the moon. More recently, the company
has been late getting several products to market, including hot camera
phones. The woes helped force out Christopher Galvin, grandson of the
company's founder, last autumn.

In his first few months, the message Mr. Zander says he received from
meetings with customers, partners and shareholders is clear: Motorola
lacks focus, both in serving its customers and in determining what kind
of company it is.

"I don't think enough of us here think of our competitors outside the
U.S., and that we can get whacked at any minute," he says. "We have to
have a bit of paranoia."

Certainly, Mr. Zander has benefited from good timing. Motorola began
showing better earnings toward the end of last year, before Mr. Zander's
arrival. The surge in cellphone sales in the first quarter came from
phones already in the pipeline, driven in part by Mike Zafirovski, the
hard-charging chief operating officer who was passed over for the top
job.

One of the first things Mr. Zander did was visit Tim Donahue, president
and CEO of Nextel Communications Inc., an important customer that
together with Motorola developed Nextel's popular push-to-talk phones.

"Our relationship had gotten very strained," says Nextel's Mr. Donahue,
referring to the previous Motorola management. "He listened and
understood and went back and did it," he says about Mr. Zander. Among
other things Mr. Zander did was put Sam Desai, Motorola's chief
information officer, in charge of the Nextel business. Mr.
Donahue says the dialogue with Motorola management has improved.

One of Mr. Zander's biggest priorities is to break down barriers within
the company. It fits with a concept he believes will be Motorola's key
to success called "seamless mobility." The idea is to have access to
voice, data, music and other information from a single device -- without
having to switch devices when users enter their car, office or home.
Motorola touts the approach in some splashy new ads, calling it "the
device formerly known as the cellphone."

Mr. Zander is expected to announce some new models and detail steps to
change the company's structure at its semiannual conference early next
week.

The company's different divisions traditionally worked autonomously,
contributing to a lack of common purpose and identity at Motorola, past
and present company executives say. With that in mind, Mr. Zander has
instructed some of the company's divisions to cooperate.

The company's marketing and public relations departments, for example,
recently spent a day in the company's lab, which has a budget of nearly
$4 billion. Padmasree Warrior, Motorola's chief technology officer, says
the meeting was the first in her 20 years at the company. "The idea was
to get a dialogue going and to simplify what we're working on," she
says. Mr. Zander has asked her to spend as much as 70% of her time
focusing on the company's future; she used to spend that much time only
on operational issues.

Investors say they welcome the improvements. Still, "a lot depends on
the case Zander makes and how believable it is," says Thomas McIntyre,
president of McIntyre, Freedman & Flynn Investment Advisors Inc., an
Orleans, Mass., firm that holds Motorola stock.

Motorola's colorful history, which includes providing the walkie-talkies
and other equipment that the company says helped win World War II, is
both its strength and weakness. That lofty position bred a sense of
entitlement that led to inertia at a time when global competition
intensified, many agree.

When the company wanted to roll out cable modems in the mid-1990s, for
example, Motorola's semiconductor division was so unresponsive in
developing the necessary chip that Motorola gave the business to a
competitor. Motorola's most glaring mistake at the same time was missing
the switch to digital cellphones from analog. That allowed Nokia, a
former paper company, to leap over Motorola to dominate the cellphone
market.

http://online.wsj.com/article/0,,SB109053226008771525-search,00.html?collection=wsjie%2F30day&vql_string=nextel%3Cin%3E%28article%2Dbody%29

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