Motorola could take 2 or 3 years for turnaround
NEW YORK (Reuters) - Whether or not Motorola Inc. (MOT.N: Quote, Profile, Research) CEO Ed Zander departs, investors need to brace for a long road ahead, as analysts estimate it could take the mobile phone maker two years or even three to turn its business around.
Motorola warned this week that its mobile devices division will not make a profit in 2007, with weak phone sales in Asia and Europe likely relegating the company to third place in the global handset market for the year, down from its long-held No. 2 ranking.
The news fueled speculation that Zander might be forced to step down soon, which would leave a new chief executive with a lengthy to-do list to revitalize the brand.
Motorola needs new hit phones to replace the aging Razr series, it must improve its cost structure and it needs to push for improvements in crucial markets, analysts say.
Even at home, it has to rebuild relationships with wireless carriers in the United States -- a market Motorola has dominated historically but where it has been falling from grace among customers including AT&T Inc. (T.N: Quote, Profile, Research), analysts say.
"My biggest worry on Motorola is market share declining in the U.S. market," said Piper Jaffray analyst Michael Walkley.
Samsung Electronics Co. Ltd. (005930.KS: Quote, Profile, Research) shipped 37.4 million phones in the second quarter, stealing the No. 2 spot from Motorola, which estimated shipments at 35 million to 36 million.
Samsung is eating into Motorola's share of phone sales at Sprint Nextel Corp. (S.N: Quote, Profile, Research), while LG Electronics Inc. (066570.KS: Quote, Profile, Research) is taking its market share at Verizon Wireless, Walkley said. Verizon Wireless in a joint venture of Verizon Communications Inc. (VZ.N: Quote, Profile, Research) and Vodafone Group Plc (VOD.L: Quote, Profile, Research).
In the second half of the year, Motorola may also be hurt by new competitor Apple Inc. (AAPL.O: Quote, Profile, Research), which launched the iPhone at AT&T on June 29. While Sprint and Verizon appear to be pushing Samsung and LG phones as competitors to the iPhone, Motorola has no counteroffer, analysts said.
Every conversation about Motorola tends to lead to criticism over its lack of a hot-selling phone to follow the Razr, which was launched in 2004.
"Motorola needs to put together a different approach to their product portfolio," said American Technology Research analyst Mark McKechnie, who said he has seen several peaks and troughs at Motorola since he worked there in the late 1980s.
"I think they kind of get a good hot product and put all their efforts behind it and don't necessarily look out to the future or come up with the next big thing," he said.
Yankee Group analyst John Jackson said it usually takes nine to 15 months to design a phone and get it to stores. But what Motorola needs, he said, is not just a good-looking handset but a whole new series with a good selling point or theme. This may take two to three years to develop, he said.
"Motorola may come up with a new innovative design language, but that is no longer a sufficient competitive differentiator. You need that plus a new consumer value proposition," he said, citing as examples Sony Ericsson's Walkman phone for music fans and market leader Nokia Oyj's(NOK1V.HE: Quote, Profile, Research) N-series, which is all about entertainment. Sony Ericsson is a joint venture of Sony Corp. (6758.T: Quote, Profile, Research) and Ericsson (ERICb.ST: Quote, Profile, Research).
NEW STRATEGY
Zander hinted at a new strategy in January when he said that phone design should be about consumer experiences as well as good looks. But analysts say they have yet to see a new product set around this theme.
While no single Nokia phone has enjoyed as much fame as the Razr, the Finnish company has a wide range of products to suit every level of the market -- from the ultra-cheap basic phone to the middle-of-the-road handset to high-priced smartphones.
Motorola should take a similar approach, according to analysts, who estimate that Nokia sold 100 million phones -- or almost three times Motorola's sales -- in the second quarter.
The most optimistic analysts are looking for signs of a Motorola turnaround in the first quarter of 2008, when "things are going to stop getting worse in terms of market share and a lack of profitability," RBC Capital Markets analyst Mark Sue said.
"But, it depends on management's ability to execute on several metrics," he said.
"Probably you're looking at two years," Goldman Sachs analyst Brantley Thompson said.
If Motorola improved costs for product design and components, it could be easier for the company to get out of producing just one-hit wonders, Piper Jaffray's Walkley said.
Now that Motorola has promoted its supply chain manager, Stu Reed, to the helm of the handset business, this could be achieved after about 12 months from now, he said.
Motorola has declined comment on Zander's future but says he is working closely with senior management to get Motorola back on track. Some analysts say the entire company needs a cultural overhaul.
It needs to be "more like Silicon Valley in terms of accelerating development. You need a sense of urgency," said RBC's Sue.
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Motorola warned this week that its mobile devices division will not make a profit in 2007, with weak phone sales in Asia and Europe likely relegating the company to third place in the global handset market for the year, down from its long-held No. 2 ranking.
The news fueled speculation that Zander might be forced to step down soon, which would leave a new chief executive with a lengthy to-do list to revitalize the brand.
Motorola needs new hit phones to replace the aging Razr series, it must improve its cost structure and it needs to push for improvements in crucial markets, analysts say.
Even at home, it has to rebuild relationships with wireless carriers in the United States -- a market Motorola has dominated historically but where it has been falling from grace among customers including AT&T Inc. (T.N: Quote, Profile, Research), analysts say.
"My biggest worry on Motorola is market share declining in the U.S. market," said Piper Jaffray analyst Michael Walkley.
Samsung Electronics Co. Ltd. (005930.KS: Quote, Profile, Research) shipped 37.4 million phones in the second quarter, stealing the No. 2 spot from Motorola, which estimated shipments at 35 million to 36 million.
Samsung is eating into Motorola's share of phone sales at Sprint Nextel Corp. (S.N: Quote, Profile, Research), while LG Electronics Inc. (066570.KS: Quote, Profile, Research) is taking its market share at Verizon Wireless, Walkley said. Verizon Wireless in a joint venture of Verizon Communications Inc. (VZ.N: Quote, Profile, Research) and Vodafone Group Plc (VOD.L: Quote, Profile, Research).
In the second half of the year, Motorola may also be hurt by new competitor Apple Inc. (AAPL.O: Quote, Profile, Research), which launched the iPhone at AT&T on June 29. While Sprint and Verizon appear to be pushing Samsung and LG phones as competitors to the iPhone, Motorola has no counteroffer, analysts said.
Every conversation about Motorola tends to lead to criticism over its lack of a hot-selling phone to follow the Razr, which was launched in 2004.
"Motorola needs to put together a different approach to their product portfolio," said American Technology Research analyst Mark McKechnie, who said he has seen several peaks and troughs at Motorola since he worked there in the late 1980s.
"I think they kind of get a good hot product and put all their efforts behind it and don't necessarily look out to the future or come up with the next big thing," he said.
Yankee Group analyst John Jackson said it usually takes nine to 15 months to design a phone and get it to stores. But what Motorola needs, he said, is not just a good-looking handset but a whole new series with a good selling point or theme. This may take two to three years to develop, he said.
"Motorola may come up with a new innovative design language, but that is no longer a sufficient competitive differentiator. You need that plus a new consumer value proposition," he said, citing as examples Sony Ericsson's Walkman phone for music fans and market leader Nokia Oyj's(NOK1V.HE: Quote, Profile, Research) N-series, which is all about entertainment. Sony Ericsson is a joint venture of Sony Corp. (6758.T: Quote, Profile, Research) and Ericsson (ERICb.ST: Quote, Profile, Research).
NEW STRATEGY
Zander hinted at a new strategy in January when he said that phone design should be about consumer experiences as well as good looks. But analysts say they have yet to see a new product set around this theme.
While no single Nokia phone has enjoyed as much fame as the Razr, the Finnish company has a wide range of products to suit every level of the market -- from the ultra-cheap basic phone to the middle-of-the-road handset to high-priced smartphones.
Motorola should take a similar approach, according to analysts, who estimate that Nokia sold 100 million phones -- or almost three times Motorola's sales -- in the second quarter.
The most optimistic analysts are looking for signs of a Motorola turnaround in the first quarter of 2008, when "things are going to stop getting worse in terms of market share and a lack of profitability," RBC Capital Markets analyst Mark Sue said.
"But, it depends on management's ability to execute on several metrics," he said.
"Probably you're looking at two years," Goldman Sachs analyst Brantley Thompson said.
If Motorola improved costs for product design and components, it could be easier for the company to get out of producing just one-hit wonders, Piper Jaffray's Walkley said.
Now that Motorola has promoted its supply chain manager, Stu Reed, to the helm of the handset business, this could be achieved after about 12 months from now, he said.
Motorola has declined comment on Zander's future but says he is working closely with senior management to get Motorola back on track. Some analysts say the entire company needs a cultural overhaul.
It needs to be "more like Silicon Valley in terms of accelerating development. You need a sense of urgency," said RBC's Sue.
source
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