Last week, Motorola announced 2nd quarter results and they were atrocious. Though not as much as in the past, the cell phone division lost money again and Wall Street cheered! Several analysts called last quarter’s efforts a step in the right direction and the company’s stock jumped 11 percent after the quarter’s results were made public. I suppose one could say losing less money compared to last year in the handset division, responsible for 40-50 percent of the company’s revenues, is a step forward and a positive. I wouldn’t.
As an investor who is considering putting money in this long-suffering company, I want to see substantial progress in boosting revenues and profits on a consistent basis. And I want to see progress that is not the result of cost cutting and job elimination. Motorola has been losing engineering and design people for months, people who are needed to develop new products for the fast-moving cell phone market.
Morale is down, the leadership team takes too long to make decisions, and the brain drain continues.
Recently, the company announced that Sanjay Jha from Qualcom will be the new Co-CEO of Motorola and will head up the cell phone division. Next year, when the cell phone unit is due to be spun off into an independent company, Mr. Jha will be its CEO. Qualcom is a chip company that develops chips for cell phone companies. I foresee problems.
Mr. Jha, as the former COO of Qualcom and president of the Qualcom CDMA Technologies unit, is an engineer coming from a chip manufacturing environment. He is too much of a technologist to occupy the CEO’s office of an ailing company that has to change direction in a market driven by consumer needs. He must know what features are necessary in new handsets, and he must compete with the likes of Apple’s Steve Jobs, as well as the heads of Nokia, RIM and Samsung, all of which have grown extremely strong in the next-generation handsets and smart phones. Not an easy task for a non-marketing, engineering individual.
Admittedly, I don’t know much about Mr. Jha. Still, I would rather see Motorola hire an individual who had previous responsibility in devising a strategy in the cell phone market and had shown success in the handset business instead of one who worked for a company that makes the chips that go inside the phones.
Moreover, the next year or so will not bring banner revenues for any of the cell phone makers due to a slowing global economy.
And that doesn't even cover the Carl Ichan factor. Labeled an "activist" by the investment industry, he now has three seats on Motorola’s board and will seek to increase shareholder equity. By that he means his share value. This is the guy who, during his initial foray into Motorola’s business, wanted to cut R&D costs to zero. Can anyone imagine cutting R&D costs of a company in a very competitive technology market to zero?
Mr. Jha faces an extremely difficult task to right this sinking ship.
And to those investors that put money into Motorola upon the company’s recent quarterly results, I would advise cashing in your gains. If you still want to invest in a cell phone business, look at Nokia or RIM. You can eliminate Apple, Samsung, LG, and the others as they are not pure plays in cellular telephony.
Then take a "wait and see" attitude until the new plan and strategy take hold, as well as the introduction of any new products from the spun-off Motorola handset division next year.
Copyright by Bill Durrenberger August
15, 2008. All rights reserved.
Disclaimer: The statements and information presented in this article reflect
the opinions of the author and do not constitute a recommendation to buy or
sell specific securities. Before
purchase of any investment, the buyer should consult a financial adviser.
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