Friday, October 05, 2012

Motorola – Hard to Ignore, Hard to See!

The Erstwhile No.1 maker of Cellphones is Today, Only a Shadow of its past. And there is a Sense that something will not end well. But new CEO Sanjay Jha’s Android bet has pumped-in a Fresh Breath of Life into Motorola. The Issue is – it’s only One Breath.

For Sanjay Jha, taking charge of Motorola’s Mobile Devices division, two years back, was much like Alan Roger Mulally (the erstwhile Boeing chief) accepting the role of playing the saviour to the ailing Ford Motors (which Mulally managed quite brilliantly, without any aid from the Obama Senate!). It was a completely new ball game for Jha, with many differences of dynamics underlining his past record as the COO who ensured that Qualcomm becomes the global #1 maker of semiconductor chips for mobility devices, and future expectations that he would rescue Motorola, which during its heydays, marched around selling mobile handsets with authority. Distrust was rampant, as he realised during his first meeting, on day #1 at Motorola’s headquarter at Libertyville, Illinois, in August 2008. “Why should we trust you?” asked an employee. Jha chose not to respond, for he knew there was still one person who believed in his competence to save a plummeting stock and a fading future. He was that person. Motorola, which was once the #1 mobile handset maker, had lost the top spot to Nokia in the fall of 1998. Six years later, Samsung displaced it as the new #2. When Jha took over, the company, with 10% of global handset market share (falling from 14.5%, during the same quarter a year back), it stood at #3 (figures for Q2, 2008). After the Razr, there had been no hit roll-out, and the American, besides losing share to Asian and European counterparts, had shed $37 billion in Mcap in the past year-and-a-half. Jha had to brace himself up to sort through the rubble that Motorola had turned into. That, he got a good taste of, during an evening meeting on his 13th day in office. He was meeting the top brass at Vodafone, to discuss a possible multi-billion dollar alliance. Jha confidently put three very new, innovative and intelligent but complicated and yet to be designed product ideas before them. To that, one of the Vodafone executive responded – “Could you please pick one device and let me know what you think I should buy?” The response was obviously dripping with sarcasm – the deal never happened and Jha was left dry. Till date (over the past 27 months), Jha has taken home $28.2 million for every 1% decline of the Motorola share price. Expensive money. And the shareholders? A fall of 51% in Mcap (which has fallen to $19.19 billion as on November 10, 2010) during his reign, is all they get in the name of a celebration cake.

This is no mere squabble. Today, as the number of handsets in service is headed towards the 5 billion mark (which it will cross by 2011, as per the Yankee Group), Motorola still finds itself in the middle of the river. But some things have changed over time. Here’s a screen-shot. After years of stressing on innovation which the market never desired, Motorola had products which used 22 different screen displays, each of which required different software, implying higher costs and longer time to market. There were many such discrepancies. Jha went about putting the house in order. He fired employees, turned to smartphones, embraced the Android OS, got a tie-up going with Google and Verizon, and even started laying the platform for a possible two-way split of the Handset and the Enterprise Mobility Services divisions by 2011. And despite the financial heartaches, the investors are quite getting to like Jha. His Android bet has worked, and Motorola’s single-largest pride – the mobile unit – has reported a profitable comeback in the third quarter ended September 2010. Most importantly, after half-a-decade of continous decline in topline, the devices division is all set to record a y-o-y increase in annual revenues (estimated at 12.8% y-o-y for FY2010 and 18.2% for FY2011, as per Credit Suisse). Bottomlines will grow healthy too. After filing accumulated losses of $4.86 billion during the past three years, the company is set to record $382 million in net profits during FY2010, which is further forecasted to rise to $738 million in FY2011. While speaking to B&E from New York, Andrew Muench, Technology Analyst at Credit Suisse, says, “Following solid Q310 results, we adjust our EPS estimates to $0.36/ $0.60 for 2010/11. Given robust execution in all businesses, strong cash generation, Devices now profitable and separation on track, we see several catalysts for further outperformance. We now model Devices revenue of $9.5 billion in 2011, well above the break-even run rate just achieved.” Some relief.

While the Droid launch proved a winner for Motorola, the company displayed wisdom on the mix of smartphones it launched this year. Out of the 22 handsets, 9 are low-end, 5 are mid-end, while 8 fall in the high-end category. These therefore make for a fresh portfolio which can cater to all possible segments of the market, across geographies.


Source : IIPM Editorial, 2012.
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