Four years after picking the wrong Z guy for the job, Motorola today received some good news.  Ed Zanders is going to step down at the end of the year as CEO, but continue on as chairman of the company.  Four years ago, Ed Sanders beat out Mike Zafirovski, known around Motorola as Mike Z and largely responsible for making it possible for Motorola to bring the Razr to market in record time.

Ed Zanders took the helm as a silicon valley insider and Motorola’s turn around in operations and quality rapidly started to turn around as the ring leader of that effort left Motorola to take the top job at Nortel.

Motorola chose glitz and glam over substance and results and their stock price today reflects their poor choice.  Motorola was unable to follow up the success of the RAZR, because the new leader did not bring about the RAZR in the first place.  You can’t repeat something that you never did the first time.  RAZR development began around July 2003 (I was still with the company that summer).  It launched about a year later, and after Ed Zanders joined the company in January of 2004.  Mike Z then left Motorola as an employee the following January in 2005.

Motorola enjoyed a temporary stock recovery over the last two years that directly correlates to the RAZRs product life cycle, but that product has been milked almost dry. 

Motorola was suckered by Steve Jobs and Apple with the original ‘iPhone’ that was a poor example of a cell phone and an even poorer example of an ipod.  Instead Steve Jobs used the launch of the Rokr as an opportunity to launch and announce the Nano.  Both Motorola and Apple lost a significant opportunity to come to market with a much better iphone.  If they had delayed the Rokr until it was ready, and worked to refine it more, they could have owned the cell phone market a few months later.

Motorola’s Silicon Valley boy, Ed Zander brought off the Rokr in September of 2007, but he had his lunch handed to him by a silicon valley master, Steve Jobs.  Nokia may have knocked Motorola off the top seat as a cell phone manufacturer, but Apple kicked them while they were down and then did a run around with the future Apple Iphone, which notably sucks as it is a poor cell phone, and could have significantly benefited from Motorola’s knowledge and experience.  Jobs did what he did best and worked Motorola like Black Beard working over a Spanish GAlleon, but instead of gaining some understanding of the wisdom behind the technology, Jobs opted for the short cut and glitz, and Motorola just looked washed up.

Two years after that ROKR fiasco, Motorola has now realized with the help of an Icahn investor activist and guardian angel that Ed Zanders juice is gone.  Motorola picked the wrong Z guy for the job, and they paid the price for it.  Many people including myself have been calling for Ed Zander’s departure for quite some time.  The fires started to get really hot last April, after Zanders said that he loved his job and hated his customers (implying the carriers such as Verizon Wireless). 

This statement combined with Zanders lack of vision and execution, triggered some people to draft a Plan B for Motorola to prepare for life after Zanders.  Plan B might be starting now, but it comes as Motorola continues to slide from a strong number 2 cellular manufacturer to a rapidly weakening number 3.

Open Wireless, Verizon and Zanders Departure

I think it is important to note that Zanders departure announcement comes less than a week after Verizon Wireless, one of Motorola’s biggest customers, announced that it will open up its wireless network to all platforms.  Just like the internet, future cellular services will be accessible by any device.  When you purchase DSL service today, you do not have to purchase a laptop or computer made to work exclusively with your DSL provider.  This will be the future of the Wireless Spectrum in the future.  Any phone will be able to access the Wireless spectrum.  Wireless companies will become much more like ISP services are today.

Back in 2001 when I managed the Verizon finance account for Motorola, Verizon had a three tier plan for offering phones.  Their first tier phone provider would sell Verizon approximately 50% of the phones that Verizon would take for the year.  Their second tier phone provider (motorola at the time) would sell Verizon a little over 30% of the phones that Verizon would take.  A third tier would then pick up about 10%, and Verizon would experiment with the other 10% or push it to a hot phone that popped up with the first, second or third tier providers.

Essentially, when a phone manufacturer signed a contract with Verizon for the year, they had a lock on 50, 30 or 10 percent of the Verizon market.

That system has been deteriorating rapidly since then.  Verizon carries a wider basket of cell phones in their product portfolio, but selling widgets is not Verizon’s core competency.  Moving those widgets around and managing inventories is a pain and a cost center, that is pushed back to the manufacturers as much as possible.  It creates headaches and requires Verizon to heavily subsidize phones.

Consumers hardly ever know the true cost of a phone and this creates inefficiencies in the market, which have led Motorola to poor decisions.

However, Verizon may have nailed the last nail in Zanders’ career coffin.  By announcing that they will open up to all phones and devices, Motorola and other carriers are going to lose a big share of the lock on Verizon’s sales.  Motorola has been slipping anyway from 2 to 3 and maybe beyond with Verizon, but this will enable all comers to enter Verizon’s marketplace.  Competition is about to get a lot hotter and that spells big trouble for Motorola that has not been able to find its way during Zanders’ tenure.

The $30 billion Question

Will anyone be able to steer the Motorola helm with a board that has historically been making poor CEO choices for almost 20 years?

The board may once again choose the wrong person for the job.  If so,that may ultimately put the company completely under.  Back in 2000, I recommended to Motorola and to Mike Z, that Motorola should engage Microsoft to partner or buy the company out.  Back then, Motorola could not make a usable operating system to save their life, they were cash poor, and Microsoft was eager to charge into the smart phone marketplace.  That was the right answer then.

Today, Motorola is possibly a cheaper buy.  The company has trimmed a lot of fat off the bone.  Its not a lean mean fighting machine, but it is lean.  Microsoft could pick up the company and charge into a better position against Google.

Google is a little to snobbish to consider buying Motorola themselves.  The culture would not match up and Google would much rather go it alone and possibly make the same stupid freshman mistakes that Apple did with the iPhone.  Microsoft however is a lot smarter when it comes to business.  They do not like to be first to market and they prefer to purchase a company rather than innovate themselves.

Microsoft could make a play for Motorola and benefit from a massive synergy in products and services from Microsoft Live, to Zune, to Xbox and more as they match up with Motorola’s very heavy book of patents and know how in gadgets that includes access to the first wireless MP3 player ever brought to market

Motorola stumbled on that launch last year just as Microsoft was pulling it off.  I had a front row seat to that melt down.

Motorola’s connected home concepts and products would fit very nicely within Microsoft’s 12 year vision of the future of consumer electronics (I know, I studied Microsoft’s vision and submitted my recommendations to Motorola accordingly.)

Motorola’s board needs to recognize that they are very very poor at choosing a CEO.  Their culture has been bread for almost 2 decades in a way that shows the people working their way up through the ranks of Motorola to believe that they will not be given the top job and that the top job will go to either family or an outsider.  That has been poisonous for Motorola.

Motorola’s board needs to take an honest look at their own SWOT and come to realize that their best bet and best opportunity to realize shareholder value is to sell themselves off to Microsoft.  This will be their last chance to save the value that is left in the company.  Motorola’s board is almost like an addict that can’t seem to recognize the benefits of going to a good drug rehab, they continually make self destructive decisions choosing the wrong friends for the wrong reasons and chasing away the people and technologies that are good for them.

From Microsoft’s perspective, they have to ask themselves if this is the right strategic move to make today to compete with Google.  Google has drawn the battle lines and Microsoft has not yet made a move to fight or just surrender.  Buying Motorola could give them a significant advantage, if they have the vision still to see where to plug in Motorola’s technology.

Update Citi Predicted the Departure

Other Sources - Motorola CEO Zander stepping down

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Investors did not pull any punches as they bounced out of Motorola stock on Friday.  As of 2:23PM ET the stock had dropped to $18.86, a fall of $1.69 or 8.22%.

That’s about 21 cents over the 52 week low for the stock.  Investors are not happy with this latest news or the lack of it.  In this day and age, its one thing for a corporation to phone in disappointing numbers.  However, in this situation it was more troubling as the disappointing numbers not only seemed to surprise Motorola, but even befuddle them.

It would appear that they were not on top of the situation and didn’t see this coming and that is a bigger mistake than actually missing.  Businesses will go through natural cycles and consumers will change their habits.  These are all normal items for consideration.

In this day and age with information systems that are supposed to be plugged in and tuned to every aspect of a company, Motorola should have had their finger on the pulse much sooner.  At least they might have know when to pull out the defibrillators, but as it stood it appeared that they didn’t know just how sick or healthy their patient might be and the stock was rapidly discounted for that uncertainty.

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Motorolan is a friendly term that employees of Motorola call themselves.  Motorola is releasing an earnings cut and sales guidance change over its 4th quarter performance.

The revised numbers will peg sales down from 11.8-12.1 billion to $11.6-$11.8 billion, a $200 million swing.  They are also calling out charges that will hit earnings per share by 10 cents for investment related losses, unusual taxes and stock compensation expenses and of course business reorganization.

Ed Zanders took a play right out of the old Chris Galvin book and stated, “We are very disappointed with our fourth-quarter financial performance.”  This earnings announcement comes just before the opening of the Consumer Electronics Show.  Motorola has been looking for another hit to follow up on the success of the Razr, but other mobile phone makers have been quick to enter the slim phone market.

Motorola has never been good about building buzz about its products and this can be witnessed by listening to the crickets chirp Moto slogans just days before CES.  With Microsoft’s launch of Zune, Nintendo’s Wii, Sony’s PS3 and Apple’s phone not to be called the iPhone, the electronics industry has to wonder when will Motorola wake the beast within.

As the head of The Home Depot announced his departure, it shed light on the fact that companies that embrace Motorola’s Six Sigma process improvement philosophy and practices they rarely see any benefits in their stock prices.  For Motorola, its probably more likely that Six Sigma hasn’t hurt their performance all these years, but instead its failure to be adopted widely throughout the company and with a passionate implementation has left the company to continue to be pulled  around  by a handful of heroes that are running out of steam trying to save the day with bloated fingers sorely stuck in the dam.

It sure would be nice to see a surprise turn around in this company, but first they must learn that marketing isn’t just about slick ads telling people what is cool.  They still need to learn how to deliver great products and build peoples passions long before they come to market. 

Ed Zanders’ ‘disappointment’ with performance is just one more example showing that this company still has a long way to go.  They say that turn arounds in a company must happen quickly if they are to work.  It would seem that if this axiom is true, then Mr. Zanders needs to strike very soon, or he will institutionalize a friendly term of a Motorolan into a negative connotation of a person and a company that have great potential but can not realize that potential.  In other words a tragedy that could have been avoided.

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BlackBerry has gotten its berries pinched by Samsung Electronics new BlackJack device.  So BlackBerry is doing what it does so very well, its kicked off a Trademark infringement lawsuit, claiming that the BlackJack device is too similar to the BlackBerry trademark especially for a device that could be very easily confused in form and function.  (see review of BlackJack for Cingular)

However, the real issue here is that more and more companies are running out of names to use for trademarks.  Apple recently launched trademark lawsuits against companies that happened to use the word ‘pod’ somewhere in the name of the company or website.

Its a legitimate concern of companies that invest a lot of money into a brand name and device, but Trademark law is not very practical either as there is a limited availability of words in the English language to name a product.  There are also just so many derivatives of English words.

Where will the world be when all of the names have been trademarked?

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China has just made a move to Check Western corporations in the high stakes chess game of 3G telecom.  Motorola, Lucent, Nortel and Ericsson all stand to lose out if China proceeds down the path of promoting 3G networks through home grown Huawei Technologies and ZTE Corporation. 

Both Huawei and ZTE have benefited from various types of partnerships with some of the same Western firms.  China looks at it like their fledgling companies are growing up.  However, many view this as a significant indication that the business culture in China is dodgy enough to take the knowledge and Western Wisdom and employ it internally to the detriment of the firms, corporations and governments that have invested huge amounts of money in the potential of a Chinese economy, which has thus far only paid off with cheaper manufacturing but has not provided a larger contribution to the global economy of consumers.

Chinese Protectionism: Don’t kid yourself about a market that is not Free

Despite the fact that Huawei and ZTE’s home grow technology has not been proven and is not in fact ready for deployment, China appears to be stalling in its decision to license 3G technology to carriers.  This delaying tactic is proving to be further evidence that China is protecting its state sponsored corporations over private firms from abroad, despite the investment of money, knowledge, and time made by those same firms. 

Chinese Politicians Shooting their Own Economy in the Foot

China walks a dangerous tightrope with these tactics.  If they continue to thwart efforts to make the Chinese market a free market then foreign investment and partnerships will dry up rather quickly, which could stunt the Chinese economy significantly.  Many firms are deeply invested and committed to China, however history has proven many times that these same companies will pull anchor and move to a new cheaper harbor of labor and resources at either the first sign of trouble or at the first indication that a better deal is available elsewhere.

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