Motorola needs more spin offs: analysts

Ben Klayman

CHICAGO: When Edward Zander takes the reins as chairman of Motorola Inc. next month, he must find a way to spur growth and compete with the cell-phone maker's more nimble overseas rivals, analysts said.

That might mean selling businesses, such as Motorola's wireless equipment and cable set-top box units, and pruning the proud old brand into a sleeker player in this age of instant communication.

Zander, who previously was president of Sun Microsystems Inc., does not have a reputation for being an axman.

"I don't see anything in his history to suggest he's a slash-and-burn kind of guy," said Charter Equity Research analyst Edward Snyder, who has a "market perform" rating on the stock.

Many analysts and investors believe Motorola remains in too many businesses -- everything from technologies for cars to boxes for transmitting cable TV -- and the best way to get its stock up is by selling or spinning off more units.

"The company has too many technologies for anyone to predict what's going on," said Snyder, who does not own stock in the company. "And so all the automotive stuff? Get rid of it. Cable? Get rid of it. Why? It's because the people who are buying the equity don't care. You're not getting any value for it."

"If you made Motorola a story that could be understood within 15 minutes when you are out marketing it to somebody, then it would be a little easier," he added.

TIGHT-LIPPED ABOUT PLANS

Zander, who officially begins his job early next month, was tight-lipped about plans in his first conference call last week. He acknowledged there are some products that do not fit at the world's No. 2 cell phone maker, but it is unclear how many businesses he will shed, or which ones.

"You have a lot of great assets here," he said. "Maybe some of the pieces of business or some product lines aren't right, but that's just doing your job. I'm coming in here with the idea of adding, not getting rid of things."

His predecessor, Christopher Galvin, maintained a wide range of products because he believed it made the company stronger as a whole. But Zander will at minimum be leading the spinoff of Motorola's chips business early next year.

"He's going to 'un-Galvinize' things," predicted Frank Dzubeck, president of Communications Networks Architects, a strategy consulting firm for the telecom industry.

After the chip spinoff, Zander must take a hard look at everything outside of Motorola's core cell-phone business, which currently makes up about 40 percent of overall sales, analysts and investors said. Without the chips business, cell phones will represent 50 percent of Motorola's sales.

Zander said he would have more to say about his vision in a few months.

Many investors would love to see Motorola sell its wireless equipment business, which has lost share to Sweden's Ericsson and Finland's Nokia.

"I don't see a viable go-it-alone strategy for their wireless infrastructure business," said Shawn Campbell, principal with Campbell Asset Management, which owns Motorola preferred and common shares.

The cable set-top box and auto electronics businesses -- both profitable, market leaders -- do not fit with the cell-phone unit, several analysts said.

Zander also needs to strengthen the businesses Motorola keeps, analysts said. The cell-phone unit needs to eliminate problems with late product deliveries and a lack of parts for hot-selling camera phones. The commercial government business, while a cash cow, is considered to be full of untapped potential.

Dzubeck also expects Zander to focus on software, something the new executive said is key to Motorola's future.

"(Zander) believes that software with very high margins is the way to offset lower margins on the hardware side," Dzubeck said.

Whatever Zander's choices, many do not expect overnight changes.

"It's going to be a gradual process," said Jane Zweig, CEO of The Shosteck Group, a wireless consulting firm. "It's going to take Ed time to learn the businesses and industries."

Reuters