Motorola Shows Its Mojo

At a July 25 analyst powwow, CEO Ed Zander unveiled follow-ups to the hit RAZR and promising deals involving video on demand, India, and China

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Ed Zander stood on the stage of the Donald E. Stephens Convention Center in Rosemont, Ill., late in the day on July 25. Weary but still smiling, the chief executive officer of Motorola (MOT) asked one last time whether the Wall Street analysts and investors gathered for the company's annual analyst meeting had any questions. One woman spoke up and wanted to know what Zander's plans for the company were "once you reach Nokia in market share?"

Zander couldn't hide a quick grin. Motorola is the second-largest maker of mobile phones, but it's gaining ground fast on Finland's Nokia (NOK)(see, 7/20/06, "Does Motorola Have Nokia's Number?"). "I think I'm in the first inning of a nine-inning game," he said. "That's the way I feel about where we're going."

It's been a pretty good first inning. Since former Silicon Valley hotshot Zander arrived at Motorola in January, 2004, it has gone from a declining power in the wireless industry to one that's contending with Nokia for preeminence. On July 19, Motorola reported another quarter of stellar financial performance. Net income for the second quarter was up 45%, to $1.4 billion, while revenues rose 29%, to $10.9 billion. Even more impressive: Motorola gained market share for the seventh consecutive quarter. It estimates its share at 22% now, up from 17% a year earlier. According to researcher Strategy Analytics, Nokia holds 33.3% of the market.


  At the analyst meeting on July 25, Zander and his executive team laid out their plans for gaining even more ground. The company introduced a series of new phones that build on the success of the company's ultra-thin RAZR, which has sold 50 million units so far. They are the KRZR, the RIZR, and the Motofone.

The company's KRZR is the closest relative to popular RAZR. The new phone is a clamshell, like the RAZR. But it's a tad narrower, at 42 millimeters wide, compared with the RAZR's 54 millimeters. The KRZR is, however, slightly thicker. The new RIZR is 46 millimeters wide, again slightly narrower than the RAZR. However, it's a slider phone, so the display slides up from the body of the phone to reveal the keypad. The third phone unveiled at the analyst meeting, the Motofone, is designed specifically as a low-cost option for emerging markets. A mere nine millimeters thick, the phone is expected to be available in the fourth quarter of this year.

The immediate reaction to the new phones was positive. "The buzz is that it's a hot product," says Bob Laikin, chief executive of Brightpoint (CELL), which distributes phones for Motorola, Nokia, and other manufacturers.


  Yet the new phones could be the least significant of Motorola's announcements at the confab. The company also announced that it would spend an undisclosed sum for Broadbus Technologies, which makes technology for video on demand.

Motorola has also struck a deal with India's Wipro Technologies, the tech services arm of Wipro (WIT), to create a joint venture for building, managing, and supporting telecom networks. And it signed a pact with Huawei Technologies of China to develop and market high-speed wireless equipment. "I think the Huawei relationship is the most significant announcement," says Christin Armacost, an analyst with Lazard Capital Markets.

Why? In contrast to its status in the mobile-phone business, Motorola is a relatively small player in providing base stations and other network equipment to telecom companies, such as Verizon Communications' (VZ) wireless business. Huawei is one of the fast-rising players in that market, in part because of its low costs.


  The two companies will cooperate on developing equipment for the next-generation technology based on GSM (Global System for Mobile Communications), the dominant standard in Europe. "We look at what is the road map for the future—where do we want to invest and how do we fill gaps so we can get there. The Huawei partnership accomplishes that," says Padmasree Warrior, chief technology officer at Motorola (see, 7/26/06, "Inside Motorola's Dealmaking").

By cooperating, Motorola may get access to more customers, particularly in emerging markets like China, and Huawei will get more credibility with customers leery of working with a newcomer. Huawei has had several disputes with Cisco Systems (CSCO) over intellectual property. Huawei had also struck a tentative deal with Nortel Networks (NT) to cooperate on equipment, but that deal fell apart earlier this month. "The possibilities [with Huawei] are very interesting," says Armacost.

Analysts are hardly betting that Motorola's network equipment business will become a star performer like its mobile-phone business. In fact, there continues to be speculation that Zander will sell off the network business because its prospects are not as bright as those for some other operations. But Zander is getting plenty of latitude to try new things in the equipment business and elsewhere. After the past two and a half years, investors figure that he's earned it.

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