Reviving Motorola - The Zander Way

            
 
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Case Details:

Case Code : BSTR197
Case Length : 19 Pages
Pages Period : 1995-2005
Organization : Motorola
Pub Date : 2006
Teaching Note :Not Available
Countries : US
Themes: Corporate Turnaround
Industry : Consumer Electronics

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"In barely 18 months at the helm of Motorola, Ed Zander has turned one of America's sickliest big companies into one of the hottest." 1

- Adam Lashinsky in Fortune, August 2005.

"Motorola has certainly gotten its act together. Their product management is excellent." 2

- You Jong O, Senior Manager, Product Planning, SK3 Telecom in 2005.

Introduction

For the third quarter ending September 30, 2005, US based Motorola reported net earnings of US$ 1.75 billion as compared to US$ 479 million in the corresponding quarter of 2004. During the same period, the company's revenues increased from US$ 7.5 billion to US$ 9.42 billion.

Motorola's global market share during the quarter grew from 13.5% to 18.7%, placing the company in the second position in the global mobile phones market. The leader was Nokia with a market share of 32.6%. The total handsets sold by Motorola globally stood at 38.7 million in the third quarter of 2005, witnessing a growth of 66% compared to the corresponding quarter of the previous year. Analysts attributed the increase in sales to the company's high performing product, Moto Razr, which sold 6.5 million units in the third quarter of 2005. Soon after the announcement of the results, Motorola's shares rose by 3% to US$ 20.68 . There was a marginal improvement in the profit margin, which increased to 11.7% as against 11.3% in the third quarter of 2004

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Motorola was a market leader in the wireless infrastructure equipment and mobile phones business. The company failed to gauge the growing demand for color phones and camera phones in the years 2002 and 2003 respectively. It also failed to take advantage of several opportunities during the late 1990s and early 2000s, due to which it lost its leadership position. Motorola also lost heavily on the Iridium satellite phone4 project.

The company recorded net losses of US$ 3.94 billion and US$ 2.48 billion in the financial year 2001 and 2002 respectively. After Edward Zander (Zander) took over as Motorola's CEO in 2004, the company was back on the growth track and introduced several path-breaking products, which resulted in Motorola regaining its lost glory. Zander gave prime importance to customers' needs, brought in cultural changes in Motorola by dismantling bureaucracy and integrating business divisions. According to Mike Walkley, analyst at Piper Jaffray,5 "A couple of years ago, people thought the Chinese and Asian players were going to take over and the opposite has happened; it's really the two big guys - Motorola and Nokia - that have continued to get stronger. I expect the trend to continue into next year for Motorola."6

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1] Lashinsky, Adam, "Moto's Zander: Brilliant or Lucky?" Fortune, August 22, 2005.

2] Crockett, Roger O., Edwards Cliff, Ante, Spencer E., "How Motorola Got its Groove Back?," BusinessWeek, August 08, 2005.

3] SK Telecom is Korea's leading mobile communications company with more than 18 million subscribers and a share of over 50% in the mobile services market in South Korea. SK Telecom successfully commercialized the world's first CDMA cellular phone service and launched the world's first synchronized commercial IMT-2000 third generation service. The company's revenue in 2004 stood at US$ 9.5 billion and operating profit at US$ 2.6 billion.

4] The Iridium Phone was projected as a phone system that would make communication possible between any two points in the world. Motorola planned to use satellites to pick up signals from cellular phones and relay conversation from satellite to satellite till the signal could be transmitted to the ground. Motorola estimated that around 1.8 million people would use the technology by 2002. The project was highly complicated, requiring more than 60 satellites, but Motorola managed to place 66 satellites in earth's orbit by November 1998. However, the venture did not get a good response from the customers as the handset was priced at US$ 3000 and calling charges were over US$ 5 a minute. Motorola also failed to provide the customers with the required equipment on schedule. The project ran into several problems with CEO Edward Staiano resigning in 1999 and Motorola refusing to provide additional support. In 2000, Iridium was liquidated.

5] Piper Jaffray is a securities firm that serves middle-market companies, government, nonprofit entities, and institutional and individual investors. The firm has 104 offices in 23 states across the USA and has headquarters in Minneapolis. The net revenues of Piper Jaffray stood at US$ 797.5 million in 2004 and net income at US$ 50.3 million.

6] Black, David, "Motorola Proves Razr Sharp, on Record $9.24 Billion Earnings", www.scotsman.com, October 20, 2005.

 

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