Memo To: Ed Zander. Subject: Motorola

Words of advice for the operations guy as he prepares to take the helm

Congratulations Ed. After 25 years of climbing the corporate ladder in tech, now you have your own ship to run. And it looks to be a well-deserved promotion: as the former president of Sun Microsystems Inc. (SUNW ), you've earned a reputation as an operational and marketing whiz, with a knack for developing new products and delivered solid profits.

But once you take the helm at Motorola Inc. (MOT ) on Jan. 5, it will become clear just how deep the company's problems run. Turning around this American icon will require every ounce of the skills you've learned in your 56 years -- and call for you to pick up new ones as well.

So where should you start? First, you'll have to decide which businesses Motorola should still be in. The $26.7 billion company now has six -- cell phones, semiconductors, wireless networks, broadband communications, government and industrial systems, and smart electronics that integrate mobile networks with cars. You're right to stick to the decision to spin off the $4.8 billion semiconductor unit, SPS Spinco Inc. The business sucks in too many resources, and, frankly, its performance isn't strong enough to make it worth your while to try and fix it.

PUNY MARGINS. But don't stop there, Ed. For Motorola to boost its puny 4.4% operating margins, you must cut loose the shrinking $4.5 billion wireless-networks operation. Over the first nine months of '03, sales slumped 10%, though the unit earned $109 million. Its share of the cellular market ranks well behind Ericsson (ERICY ), Nokia (NOK ), and Nortel Networks (NT ). Nor is it clear that the broadband business, which makes cable set-top boxes and modems, is a keeper. A nearly $3 billion unit when it was acquired in 1999, it could pull in less than $2 billion in '03. Over the phone, you told me that it's important for a CEO to "look at whether to buy new businesses [or] eliminate some others." That time is now, and the sooner you trim Motorola down, the better.

That's because you've got to focus all of your operational talents on fixing the core $11 billion phone business, along with ensuring the company continues to execute well in its government and auto-electronics specialties. There's no doubt you have the ability: Your friend, Stephen J. Luczo, CEO of PC disk-drive maker Seagate Technology (STX ), on whose board you serve, says you are the ultimate "operations guy." After all, at Sun you oversaw the development of Solaris, an operating system for businesses. That changed Sun from a supplier to techies into a major corporate computing power. You strengthened relationships with suppliers, allowing Sun to to maintain double-digit margins. As you told me, "there's no substitute for good execution."

At Motorola, those skills will get plenty of use. The main reason it has repeatedly been late to market is that it uses too many components -- both hardware and software -- to make up the guts of its cell phones. Solve that problem, and you'll go a long way toward bringing margins in line with Nokia Corp. and Samsung Group.

READING THE MARKET. Success will also depend on improving Motorola's ability to gauge market trends, especially in the rapidly shifting phone sector. After all, cell phones, now 40% of revenues, will hit 50% after the spin-off. The company infamously missed the move to digital phones in the mid-1990s -- and allowed Nokia to take over the No. 1 spot. Motorola's current shortage of hot new camera phones also shows weak market insight.

For years, your predecessors have talked about changing Motorola's plodding, engineer-driven culture and making it operate more like a fast-moving consumer-electronics giant. You'll actually have to do that to return it to the top of the cell-phone heap. Take a look at the companies coming on strong in that market: Samsung, Sanyo (SNE ), and LG.

Competing with those folks will require a major learning curve on your part, Ed. Sure, you saw the potential in the Enterprise 10000 high-end server that Sun bought from Silicon Graphics Inc. (SGI ) in the '90s. SGI thought it worthless, but you marketed it to folks who didn't want to buy mainframe systems from rival IBM (IBM ). It became one of Sun's crown jewels. But that wasn't a consumer gadget -- and consumers can be a whole lot more finicky than the average CIO.

Finally, you need to prove you've got the one thing every CEO needs: vision. Dreaming up the next big thing was Scott McNealy's job at Sun. Now you, too, will have to demonstrate that crucial ability to see around corners. Good luck.

By Roger O. Crockett

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