Motorola Connects

Its digital cell-phone business is finally turning around

Five months ago, Motorola Inc. made a promise: By the holiday shopping season, the time of year when 40% of all cellular phones are sold, a sleek digital version of its StarTAC phone would be on retail shelves. Lo and behold, by Thanksgiving weekend the StarTAC was there to greet holiday shoppers.

A few years ago, nobody would have been surprised at seeing Motorola set a goal, then reach it. But that was before the company stumbled, particularly in cell phones. For nearly two years, while rivals were flooding the markets with digital handsets, Motorola couldn't deliver.

ASIAN FLU. Hitting the digital-phone target was only one sign that the Schaumburg (Ill.)-based electronics giant may be starting to execute as it did 10 years ago, when it was cited as one of the world's best-run companies. True, sources close to Iridium, the Washington (D.C.) global satellite network that launched its service in November, say manufacturing glitches by Motorola have caused a temporary shortage of phones. And Motorola's far-flung business suffers from Asia's economic turmoil and sluggish demand for semiconductors.

But Motorola has unveiled a nifty mobile phone and two-way pager for Nextel Communications Inc., in addition to the StarTAC and Iridium phones, all in time for Christmas. "We think that was critical," says James P. Caile, corporate vice-president of marketing for Motorola's Personal Communications sector.

The turnaround in digital phones is a major milestone in Motorola's recovery. Even before the latest models arrived, it had started regaining lost ground. Through September, its U.S. market share climbed five percentage points, to 11.5%, allowing Motorola to surpass rival Qualcomm Inc. and edge closer to industry leaders Nokia Corp., with 40% market share, and L.M. Ericsson, with 20% share, according to researcher Dataquest Inc. "They've gotten over the big hurdles," says Dataquest analyst Matt Hoffman.

"HUNGRY VENDOR." Investors agree. Motorola's stock has soared 40% since September, to around 60. On average, analysts expect the company to earn $1.87 a share in 1999, up from 54 cents a share estimated for 1998. Rather than considering the stock a "sore point," said Susan F. Flischel, a Countrywide Investments portfolio manager, "we're cheering."

Why the changes? In July, Motorola rejiggered its communications division, consolidating autonomous divisions such as cell phones and two-way pagers under one umbrella and adding about 500 engineers to the effort. "We were more disjointed before," Caile admits. Today, "we're a much more organized and cohesive organization."

The moves have helped Motorola patch up relations with cellular service operators. For years, they considered the company difficult to deal with. Since reorganizing, "Motorola is acting like a hungry vendor who needs our business, vs. an arrogant vendor entitled to our business," says Don Warkentin, chief executive of Aerial Communications Inc. "That's a breakthrough."

The hole that remains in Motorola's comeback yarn? A tri-mode phone. Giant operators such as AT&T Wireless buy tri-mode phones almost exclusively because they shift seamlessly between two digital frequencies and analog mode so users can get their calls more easily as they roam. "That's the missing element," notes Hoffman. "They're largely out of the AT&T account." Motorola says it can fill the void by mid-1999.

As to completing its turnaround, part of the answer is up to fate--how the world economy performs. In the meantime, says Caile: "The important thing is to set targets...and keep those commitments."