Motorola: Hearing the call
Emerging from one of its worst years, Motorola takes action and looks ahead with optimism
By Gary Borislow -- Movers & Shakers, 8/15/2002
It has required major soul-searching, but Motorola is determined to recover from one of the worst years in its history. In April 2002, the company reported its fifth consecutive quarterly loss, with most of the blame going to reduced sales in its Personal Communications Segment (cell phones, pagers, and two-way radios), Semiconductor Products Segment, and Global Telecom Solutions Segment (wireless infrastructure).
 “These are challenging
and turbulent markets worldwide, and economic and political
volatility makes predictions uncertain. Still, we continue to believe
Motorola will return to profitability during the second half of 2002 and
be profitable for the full year.” Christopher
Galvin, CEO,
Motorola |
To right the ship, Motorola has had to transform its operations, starting with shrinking in size. The company expects to employ about 100,000 people at the end of the year, down from about 150,000 in 2000. Major upheaval in its leadership ranks also occurred. “Over the last 18 months I have named new leaders in approximately 70 percent of Motorola’s 100 most leveraged management positions corporatewide,” Galvin said. “This refreshed leadership team shares commitment to our shareholders to operate with extraordinary financial discipline.”
Recognizing and admitting that it lacks the necessary resources in certain markets and technologies, the company also has forged several new partnerships and collaborations that are quite dissimilar to anything it has carried out in the past. Motorola recently signed a deal with Siemens Information and Communications to develop new 3G (third-generation) handsets for UMTS (Universal Mobile Telecommunications System) based on Motorola’s i.300 platform, marking the first time the company will manufacture handsets to be sold to a competing handset producer.
“This is very good for both companies,” said Mike Zafirovski, executive vice president and president of the Personal Communications Sector. “This will enable the adoption rates and stimulate the market a great deal.”
Another major joint venture announced recently involves Motorola and two other leading semiconductor manufacturers, Philips and STMicroelectronics. The alliance intends to share in the costs to develop new advanced technologies and chipsets. Motorola expects to see the initial savings in late 2003 and an eventual two-thirds reduction in the cost of maintaining this aspect of the segment’s technology roadmap.
Reports have recently surfaced that Motorola is looking for a partner to help shore up its ailing Global Telecom Solutions (GTS) division, which makes the gear used to build wireless networks. Rivals Ericsson and Nokia have opened up a lead in the race to build next-generation networks. Motorola has expertise in building basestations, but lacks the switching technology to direct cellular calls. Nortel Networks has emerged as the likely candidate, not only because it is strong in switches, but also because it has made greater inroads than Motorola with phone companies in Europe.
President and COO Edward Breen acknowledged at the company’s annual shareholder meeting in May that Motorola is actively seeking someone that can provide this switching technology, but didn’t mention when such an agreement would be made. “It’s very clear that we’d like to be partnered closer to somebody that has the switch or the core of the network,” he said. “We’re going to take our time to make the right move at the right time.”
 “It’s very clear that we’d like to be partnered closer to somebody that has the switch or the core of the network. We’re going to take our time to make the right move at the right time.” Edward Breen, President and COO, Motorola |
Nowhere is Motorola’s commitment to change more evident than in its Personal Communications Segment (PCS). Cost-cutting is now the name of the game as the company reacts to an extreme slowdown in the cell-phone market caused by reduced demand and, in some markets, saturation. The unit has trimmed staff, closed plants, and overhauled its product line to meet this new market reality. “2001 was a year in which we refocused and redirected our business,” Zafirovski said.
Motorola now has fewer and more stylish units in its line, with many using similar components. New entry-level phones geared toward the youth/mass-market segment exhibit messaging, polyphonic audio, and both digital and physical personalization options. The firm expects average selling prices on low-tier phones to come down, while more sophisticated products targeted at the high end will see rising prices. Industrywide, average selling prices are predicted to remain flat or slightly down.
This cost focus has helped to alleviate matters somewhat, as the PCS unit reported its third consecutive quarter of positive operating earnings in the first quarter of 2002. Motorola is also beginning to see market-share gains as well. “We are now more cost-competitive and our share has increased,” Zafirovski said.
Strong cost-cutting measures are also being implemented in Motorola’s Semiconductor Products Segment (SPS). Numerous chip fabrication plants have been shut down and many layoffs have occurred as the company has shifted manufacturing to low-cost chip foundries abroad. To boost revenues, the company is focusing on higher-margin products in the wireless-communications, networking, and automotive-electronics markets. It is also being more assertive in licensing its intellectual property.
Motorola’s Broadband Communications Segment is encouraged by the burgeoning European market. “It’s going through some structural changes now, but in five to six years, Europe could be the size of the North American market alone,” Breen said. “Then Asia will follow.”
Resembling this European broadband market, Motorola itself is counting on emerging from its structural changes rejuvenated and poised for growth.
