Commentary: Motorola Needs a Revolutionary

The new CEO will have to slash and innovate -- fast

Investors cheered when Christopher B. Galvin resigned as chairman and CEO of Motorola (MOT ) Inc. on Sept. 19. Despite making some progress in the company's slow-mo turnaround, Galvin couldn't overcome a brutal economy or a board that didn't share his vision. The day after he resigned, the stock jumped 9%. "Hallelujah," says Barbara L. Rishel, senior portfolio manager for MTB Investment Advisors Inc., which owns Motorola shares.

Don't break out the bubbly just yet, though. Motorola needs to find a new chief -- ideally an outsider -- with the technological savvy and operational acumen to turn the company around. And the sooner the better. Rivals are moving the goalposts even as Motorola tries to right itself. BusinessWeek has learned that Nokia Corp. was expected to announce a reorganization on Sept. 26. The goal: to create a a handful of market-focused units able to accelerate its move beyond cell phones into consumer electronics.

To meet that and other challenges, the CEO will have to shake up Motorola's struggling businesses. Its wireless infrastructure and semiconductor units are weak, and the design and production systems need to be further overhauled to get new products out faster. Says Michael Birck, CEO of Tellabs Inc.: "Someone needs to grab hold of this thing and make it happen."

Motorola says it is looking inside and outside the company for a new chief. On Sept. 24, Chief Operating Officer Mike S. Zafirovski expressed interest in the job, according to Reuters. But investors and some insiders question whether he has proven himself. Mike Z, as he is known, is an aggressive leader who pushed the cell-phone unit into the black after joining the company in 2000. But since he moved up to COO a year ago, Motorola's chip performance has lagged the industry, and cell-phone margins have fallen from 7% to 3%. "I like Mike," says one shareholder, "but I don't know if he's ready."

Motorola would do better to bring in an outsider. It needs someone immediately capable of cutting through the company's notoriously intractable bureaucracy and hidebound engineering culture. Motorola is famous for hanging on to technologies such as analog and satellite phones long after the market rejects them. Motorola needs a leader like Edward D. Breen Jr., the former COO it lost to Tyco International Ltd. in 2002 after just a few months on the job. Breen impressed many by killing unpromising cable-modem technology and urging the sale of the wireless-infrastructure unit. "My issue with Motorola has always been the glacial pace of how they run their businesses," says Kevin M. Rendino, a fund manager at Merrill Lynch (MER ) & Co., which owns 9.7 million Motorola shares.

The company also needs a leader with a proven record for divining key tech trends. With wireless growth slowing and phones fast becoming a commodity business, Motorola's next chief needs to understand how to catapult into such promising areas as gaming and PC-like smart phones.

That's where a Silicon Valley exec could help -- someone who knows how to develop technology that matches what customers want. That has been a perennial problem at Motorola, which has failed to customize cell phones for key carriers such as Sprint (FON ) Corp. The new CEO ideally would have experience in both marketing and technology -- one reason investors say Edward J. Zander, former CEO of Sun Microsystems Inc., would be a good fit.

Above all, the next chief will need to be tough. He or she will have to decide what to outsource and what to keep in-house, as well as what to jettison. While its walkie-talkie technology is a keeper, axing the rest of the infrastructure biz looks like a no-brainer. Figuring out what to do with semiconductors won't be so easy, since wireless chips are part of the company's heritage. That's precisely why an outsider would be best: Motorola needs someone willing to slay a few sacred cows. The company's success may depend on it.

By Roger O. Crockett

With Andy Reinhardt in Paris

— With assistance by Andy Reinhardt

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