case 17 motorola, inc. - cengage 17: motorola, inc. 225 lead the company by following its...

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Note: This case was written to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. We would like to thank Robert E. Hoskisson and Robert E. White for useful feedback in writing this case. Data was collected from publically available sources.

Aaron Christensen,Victor Delagarza,Aric Griggs, Lubka Robertson,Tamara Stuart, Michael Valverde

Arizona State University

In November 2008, Motorola announced the post-ponement of its highly publicized spinoff of the Mobile Device segment, a struggling business segment that is pulling down the results of the entire firm. In light of the challenging economy, Motorola faces the decision of if and when to spin off this division and which new market opportunities to explore in order to return to the profitable company it was for so many years.

Company HistoryIn 1928, Paul and Joseph Galvin incorporated Galvin Manufacturing1 after acquiring “battery elimina-tor operations”2 from the bankrupt Stewart Storage Battery Company.3 A battery eliminator is a device that allows “battery-powered radios [to] run on a stan-dard household electric current”4 instead of batter-ies. Galvin Manufacturing used the technology as the groundwork for its first car radio named Motorola.5

The name Motorola is a combination of “‘motor’ (for motor car) and ‘ola’ (which implied sound).”6 Galvin Manufacturing introduced its first Motorola car radio in 1930, the Motorola Police Cruiser radio in 1936,7 and home radios in 1937.8 By the end of 1937, B. F. Goodrich had partnered with Galvin Manufacturing to become the first national Motorola dealer.9

Starting in 1940, Galvin Manufacturing expanded its product line to include two-way communication de vices.10 The first product was the Handie-Talkie SCR536 AM Radio, which was used extensively by the military during World War II.11 The success of the Handie-Talkie and a strong belief in the sustainable demand for its communication products led Galvin Manufacturing to create a separate product division and establish a sales subsidiary, Motorola Communications

and Electronics, Inc.12 Leveraging its experience with military radios, Galvin Manufacturing introduced its first commercial line of Motorola FM vehicular two-way radio systems and equipment in 1941.13 By the end of 1943, Galvin Manufacturing successfully completed its first initial public offering with its stock selling for $8.50 per share.14 Building upon earlier success, Galvin Manufacturing produced the world’s first portable back-pack FM radio (SCR300), more commonly known as a “walkie-talkie.”15 In 1946, Galvin Manufacturing part-nered with Bell Telephone Company to enable car radio-telephone service via Motorola communication equip-ment for the Chicago area.16

Galvin Manufacturing officially changed its name to Motorola, Inc. in 1947.17 As part of a diversifica-tion strategy, Motorola acquired the car radio manu-facturer Detrola, a supplier to Ford Motor Company, and entered the television market with the Golden View VT71.18 Motorola sold more than 100,000 Golden View television units within the first year and became the fourth-largest U.S. television manufacturer.19 Motorola illustrated its commitment to product development and innovation through the establishment of its R&D opera-tions in Phoenix, Arizona, in 1949.20 This R&D effort led to advances in semiconductor and transistor tech-nology, including the germanium transistor technology Motorola used in its 1955 car radios.21 The germanium transistor “was the world’s first commercial high-power transistor . . . [and] Motorola’s first mass-produced semiconductor.”22

By 1954, Motorola had outgrown its existing orga-nizational structure, causing Paul Galvin to decide to reorganize the company23 into product-line divisions.24

The following year, Galvin’s son, Robert, became Motorola’s president.25 Robert Galvin continued to

C A S E 1 7Motorola, Inc.

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lead the company by following its communication and television expertise but “shifted the company’s strategy toward selling directly to government and business.”26 In 1958, Motorola introduced the Motrac vehicular radio that “enabled the radio to transmit without run-ning the vehicle’s engine.”27 Motorola also introduced a three-amp power transistor,28 a small radio receiver used extensively in hospitals (more commonly known as a pager29) and color television sets30 during the 1950s and 1960s. In 1969, Motorola’s radio transponder on Apollo 11 “relayed the first words from the Earth to the Moon . . . [and] transmitted telemetry, tracking, voice communications, and television signals from the Earth to the Moon.”31

By 1968, frustrations over limitations concerning car-based communication technology led the Federal Communications Commission (FCC) to propose allocat-ing bandwidth to new technologies that would address this problem.32 Thus, Motorola pioneered the cellular phone industry by creating the first commercial cellular phone, the Motorola DynaTAC phone.33

Motorola continued its pioneering efforts in the world of manufacturing. In 1968, Motorola developed the Six Sigma quality improvement process.34 Six Sigma is an analytical, statistical approach that is used to improve the quality of manufacturing processes and to eliminate defects.35 Since its introduction, Six Sigma has become a global standard.36

During the 1990s Motorola extended its tradi-tional product offerings into the digital arena. Motorola acquired General Instrument Corporation, the company that developed the all-digital high-definition television (HDTV) technical standard.37 In 1991, Motorola devel-oped the first digital cellular phone prototype38 and by 1994 Motorola produced its Integrated Digital Enhanced Network (iDEN) digital radio, which combined paging data, cellular communications, and voice dispatch in a single radio network and handset.39 Motorola continued to enhance product features and produce phones with more integrated features through the end of the 1990s.40

In 2000, Motorola partnered with Cisco Systems, Inc. to expand operations into the United Kingdom with BT Cellnet by supplying the “world’s first com-mercial General Packet Radio Service (GPRS) cellu-lar network.”41 Motorola then introduced the wireless cable modem which allowed computer networking, a 700-MHz high-speed data system for public safety, a cellular PDA handset that combined Linux and Java technology, and demonstration of the first WiMAX mobile hand-offs.42

In 2004, Motorola’s introduction of the RAZR (see Exhibit 1) was a huge success as indicated by the facts that the firm sold more than 750,000 units in the first 90 days and held a 16 percent share of the cell phone

market until 2007.43 Motorola tried to extend the RAZR’s success by introducing the Q in 2005, but it ultimately failed to invoke the same response as its predecessor.44 In 2006, Motorola expanded its international product offerings again by introducing the MING touch screen smartphone with advanced handwriting software and the Chinese alphabet targeted for the Asian market.45 Despite continued efforts in the mobile device market segment, Motorola’s market share decreased from 22.2 percent in 2006 to 12 percent in 2007.46

Edward Zander, the first non-Galvin CEO, was hired by the board of directors in January 2004 to replace Chris Galvin when he retired.47 Zander steered the company toward products that focused on com-bining Internet technologies with wireless phone tech-nologies.48 In 2007, Motorola merged with Symbol Technologies in order to expand its product offerings in mobile computing, advanced data capture, and radio frequency identification (RFID).49 Motorola also acquired Good Technology in 2007 to expand access to enterprise applications, intranets, and corporate appli-cations for mobile employees.50 Disappointing returns in 2007 led Motorola’s second largest shareholder, Carl Icahn, to demand changes in the organization and the board of directors.51 Greg Brown replaced Zander in January 2008.52 Prior to being appointed as CEO, Brown held the president and COO positions. Brown possessed almost 25 years of high-tech experience and had been with Motorola since 2003.53 However, his

Source: 2009, http://www.motorola.com.

Exhibit 1 Motorola RAZR Phone


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. appointment did not help ease shareholder frustrations over Motorola’s struggling mobile device business, and during his tenure there has been significant turnover in upper management positions, ultimately affecting the company.54 Therefore, Motorola leaders have thought-fully considered the direction the company should take, specifically which products it should offer, in order to resume successful operations.

Product Offerings In 2007 when Motorola restructured the organization, it aligned its business into three operating segments: Home and Networks Mobility, Enterprise Mobility Solutions, and Mobile Devices.55 The firm’s product portfolio consists of wireless handsets, accessories, and access systems as well as digital entertainment devices, voice and data communications systems, and enterprise mobility products.56

The Home and Networks Mobility segment com-petes in the cable set-top box, broadband cable modem, cellular infrastructure, and wireless broadband systems industries.57 In the third quarter of 2008, this division contributed 32 percent of Motorola’s net sales.58

The Enterprise Mobility Solutions segment competes in areas such as two-way radio, wireless broadband systems, and private networks for both enterprise and government use.59 Furthermore, Motorola provides broadcast interactive networks, third-party switch-ing for broadband networks to include: Code Division Multiple Access (CDMA),60 Global System for Mobile Communication (GSM), and Universal Mobile Telecommunications System61 (UMTS), all of which are technologies used for mobile communication network-ing.62 This division contributed 27 percent of Motorola’s net sales in the third quarter of 2008.63

The Mobile Devices segment competes in the wire-less handset industry. This segment manufactures and sells analog and digital two-way radios, voice and data communication products for private networks, and intellectual property in the form of licenses and pat-ents.64 This segment comprised 42 percent of Motorola’s net sales in third quarter 2008.65 In the same quarter Motorola held approximately 8.4 percent market share (25.4 million units) in the global handset market. There are several competitors that have taken market share from Motorola.

CompetitorsIn the wireless handset industry, Motorola’s top com-petitors are Nokia, Samsung, and Sony Ericsson Mobile Communications. LG Electronics, Apple Inc., Research

in Motion and HELIO are also competitors but do not pose as large a threat.

Nokia66

In 1998 Nokia became and has since been the leading cell phone manufacturer. In 2008 it had net sales of $70.5 billion from 468 million units shipped. This was a seven percent increase over 2007. In 2008 Nokia controlled 39 percent of the mobile communication device market. In 2008 alone Nokia introduced 26 different phones that were focused in five different categories. Smartphone sales made up 13 percent of total cell phones shipped, totaling 61 million units. Nokia is especially dominant in the European and Asian Pacific markets.

Nokia started a joint venture with Siemens in 2007 to provide industry leading consumer Internet service. Nokia has been actively acquiring other businesses to expand its dominance in the mobile phone industry. Since 2006, Nokia has acquired nine businesses in the consumer software field that range from file sharing and music services to advertising and security. Nokia has been affected by the global crisis that started toward the end of 2007; however, the firm has been able to reduce the negative effects of the crisis through its effective use of strategic acquisitions, partnerships, and industry-leading research and development.

Samsung Electronics67

Samsung produces and sells products ranging from tele-visions to home appliances to mobile devices. It is also a major supplier for both LCD screens and memory-based semiconductor chips. Samsung’s Telecommunication Networks division, which manufactures and sells the firm’s wireless handsets, generates approximately 23 percent of Samsung’s sales revenue. With strong brand awareness, consumer-driven design, and aggressive expansion into developing markets, Samsung increased its net profit by 42 percent from 2006 to 2007.

Samsung has been able to launch premium prod-ucts and rapidly penetrate emerging markets with its mid-range products. As such, it is currently the world’s second-largest mobile phone maker, with a 14.3 per-cent market share. Its premium products, such as the Ultra Edition smartphone, have captured the attention of consumers with features such as a touchscreen, high megapixel cameras, and music capabilities. Samsung was voted “best brand” six years in a row in the United States and captured the number one market spot in France and Russia.

Sony Ericsson Mobile Communications68

With the joint venture between Sony and Ericsson in 2001, Sony Ericsson Mobile Communications was able to offer a variety of mobile handsets and other mobile


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devices that supported multimedia applications and other personal communication services. This is in line with the firm’s vision to “be the prime driver in an all-communicating world … in which all people can use voice, text, images and video to share ideas and informa-tion whenever and wherever they want.”

China, the United States, and India are Sony Ericsson’s top three markets. However, by increasing the sales of lower-priced handsets in emerging markets such as Latin America, Sony Ericsson sold over 100 mil-lion handsets in 2007—an increase of 18 percent from the previous year. Sony Ericsson believes it is in a prime position to build on its recent strong performance and continues to develop its mid- to low-range products while establishing brand awareness with its high-end products.

LG Electronics69

The Mobile Communications division of LG Electronics (LG) is a global leader in the worldwide mobile market.70 By strategically reallocating its resources, LG plans on becoming a member of the “Global Top 3.” LG aims to anticipate customer needs and surpass them with prod-ucts using the latest technology and presenting consum-ers with stylish product designs. This strategy seems to be effective as illustrated by a 13 percent increase in mobile handset sales worldwide and a 10 percent increase in global revenue in 2007.

Apple Inc.71

Most commonly known for designing and producing software, computers, computer peripherals, and por-table music players, Apple Inc. entered the mobile com-munications devices market with the introduction of the iPhone through a partnership with AT&T Mobility LLC. The iPhone combines cellular communications, a portable music player, and Internet access using Wi-Fi into a single product, all through the control of a touch-screen. Many well-established companies have tried to imitate the capabilities of the iPhone in their respective smartphones.

For fiscal 2008, Apple generated annual revenue of $32 billion versus 2007 annual revenue of $24 billion. Profit margins increased from 14.6 percent in 2007 to 14.9 percent in 2008. Also, Apple’s handset division rev-enue jumped up from approximately $250 million to $1.8 billion in 2008.

Research in Motion72

Founded in 1984, Research in Motion (RIM) is a lead-ing designer and manufacturer of innovative wireless solutions.73 RIM is best known for its telecommunica-tion handheld device, the BlackBerry. It supports mobile telephony, text messaging, e-mail, and Web browsing.

By the end of fiscal year 2008, Blackberrys were avail-able in more than 135 countries. Hardware generates 79 percent of RIM’s revenue, which amounted to $6 billion in fiscal 2008, nearly double the revenue of 2007. Profit margins for 2008 were 21 percent versus 27 percent for 2007. The company plans on expanding its selection of mobile devices with several new smartphones as well as enhancing software and services to gain new market share.

HELIO, Inc.74

In January 2005, HELIO, Inc. was formed via a joint venture between EarthLink, Inc. and SK Telecom Co., Inc. with the purpose of developing wireless telecom-munications services, including but not limited to hand-sets. Services that are included are integrated Imaging, an Ultimate Inbox, and other popular applications such as MySpace and YouTube.75 A 282 percent increase in equipment sales and other revenue from 2006 to 2007 indicates that HELIO has successfully established itself in the U.S. market.

In addition to the main competitors in the handset market, Motorola is constantly faced with competition from emerging technologies such as Mobile Internet Devices (MIDs).

Mobile Internet Devices (MIDs)76

MIDs are devices that allow consumers to “communicate with others, enjoy [their] favorite entertainment, and access information on-the-go” by connecting to wireless hotspots around town. This new technology provides all of the Internet capabilities consumers want as well as the ability to have a conversation using Voice over Internet Protocol (VoIP). Industry-leading companies, such as Intel, are forming a Mobile Internet Device Innovation Alliance.77 The MID Alliance is comprised of industry-leading original manufacturers as Asus, BenQ, Compal, Elektrobit, HTC, Inventec, and Quanta.78 The members of the alliance are working together to solve engineering challenges with respect to power management, wireless communications, and software integration.79

Each of these firms is vying for business from the customers Motorola seeks to serve as it operates in its three business segments.

Motorola’s CustomersMotorola’s Mobile Device Segment has several large customers including Sprint Nextel, Verizon, China Mobile, AT&T, and America Movil. Motorola has stated that “the loss of one or more of [these companies] could have a material adverse effect on the Company.”80 Sales to these five companies accounted for 42 percent of total revenue in the Mobile Devices segment.81


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. Customers of the Home and Networks Mobility seg-ment include Comcast, Verizon, KDDI, China Mobile, and Sprint Nextel. Sales to these five customers account for 43 percent of total net sales for this division. Similar to the Mobile Devices segment, the loss of any one cus-tomer could be detrimental.82

Enterprise Mobility Solutions segment customers include the U.S. government, Scansource, IBM, Ingram Micro, and Wal-Mart.83 Sales to these customers gener-ate 19 percent of the division’s net sales. Other custom-ers include resellers and distributors, who then sell to the commercial enterprise market.

Because of the late 2008 financial crisis and the tightening of credit, Motorola is concerned that cus-tomers will defer purchases, be unable to obtain financ-ing, and submit more requests for vendor financing by Motorola.84

Motorola’s SuppliersMotorola’s suppliers include Freescale, Qualcomm, ATI, Spansion, Texas Instruments, and STMicroelectronics. One drawback is that some of the inputs required to manufacture Motorola’s products are only available from a single supplier. In 2003 and 2004, Motorola suffered from product delays due to supply shortages caused by a lack of a sufficient number of suppliers.85 Also, with the current financial crisis, Motorola is concerned that its suppliers may become capacity constrained because of credit issues and thus cause possible product delays.86

However, Motorola actively works with suppliers to assist them in reducing lead times and improving

efficiency. David Buck, the director of procurement, states “We look for opportunities for our suppliers to be more successful.”87 Motorola works with suppliers early in the design phase of a product, enabling a fast ramp-up of production. At times, “purchasers involved in design are co-located with designers.”88 These activities contrib-ute directly to Motorola’s bottom line since parts can be ramped up and delivered faster, with increased quality and lower cost.

Financial Performance Motorola reported financial losses and a decline in annual sales in 2007 (see Exhibit 2). Net sales in 2007 totaled almost $36.7 billion, down 15 percent compared to net sales of $42.8 billion in 2006.89 The Mobile Devices segment’s net sales in 2007 were $19 billion, represent-ing 52 percent of the Company’s consolidated net sales, but experiencing a 33 percent decrease from the previ-ous year. The Home and Networks Mobility segment’s net sales in 2007 were $10 billion, representing 27 per-cent of the Company’s consolidated net sales, a 9 percent increase from the previous year. The Enterprise Mobility Solutions segment’s net sales in 2007 were $7.7 billion, representing 21 percent of the Company’s consolidated net sales, a 43 percent increase in net sales from the pre-vious year.90

Additionally, Motorola reported operating losses of $553 million (see Exhibit 2). In the previous year, the firm reported operating earnings of $4.1 billion.91 Operating margins were 1.5 percent of net sales in 2007 compared to 9.6 percent in 2006—another substantial decline.92

Exhibit 2 Motorola, Inc. and Subsidiaries

Income Statement

Years Ended December 31

(In millions, except per share amounts) 2007 2006 2005

Net sales $ 36,622 $ 42,847 $ 35,310

Costs of sales 26,670 30,120 23,881

Gross margin 9,952 12,727 11,429

Selling, general and administrative expenses 5,092 4,504 3,628

Research and development expenditures 4,429 4,106 3,600

Other charges (income) 984 25 (404)

Operating earnings (loss) (553) 4,092 4,605


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Income Statement


(In millions, except per share amounts) 2007 2006 2005

Other income (expense)

Interest income, net 91 326 71

Gains on sales of investments and businesses, net 50 41 1,845

Other 22 151 (109)

Total other income (expense) 163 518 1,807

Earnings (loss) from continuing operations before income taxes (390) 4,610 6,412

Income tax expense (benefi t) (285) 1,349 1,893

Earnings (loss) from continuing operations (105) 3,261 4,519

Earnings from discontinued operations, net of tax 56 400 59

Net earnings (loss) $ (49) $ 3,661 $ 4,578

Earnings (loss) per common share

Basic

Continuing operations $ (0.05) $ 1.33 $ 1.83

Discontinued operations 0.03 0.17 0.02

$ (0.02) $ 1.50 $ 1.85

Diluted

Continuing operations $ (0.05) $ 1.30 $ 1.79

Discontinued operations 0.03 0.16 0.02

$ (0.02) $ 1.46 $ 1.81

Weighted average common shares outstanding

Basic 2,312.7 2,446.3 2,471.3

Diluted 2,312.7 2,504.2 2,527.0

Dividends paid per share $ 0.20 $ 0.18 $ 0.16

Source: Motorola 2007 Annual Report, http://www.motorola.com.

Exhibit 2 Motorola, Inc. and Subsidiaries (Continued)


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. The firm incurred a loss from continuing operations of $105 million which resulted in $0.05 per diluted com-mon share.93 This was down from the stated $1.30 per diluted common share in 2006 with continuing opera-tions of $3.3 billion, as shown in Exhibits 2 and 3.

Another significant decrease from previous years occurred in the stated operating cash flow of $785 million

in 2007 (see Exhibit 4). Generated operating cash flows from 2005 through 2007 are $4.3 billion, $3.5 billion, and $785 million, respectively, showing a continuation of a decreasing trend.94

The less-than-stellar financial situation has led man-agement to consider different strategies that would best solve this predicament.


Balance Sheet

December 31

(In millions, except per share amounts)

2007 2006

Assets

Cash and cash equivalents $ 2,752 $ 2,816

Sigma Fund 5,242 12,204

Short-term investments 612 620

Accounts receivable, net 5,324 7,509

Inventories, net 2,836 3,162

Deferred income taxes 1,891 1,731

Other current assets 3,565 2,933

Total current assets 22,222 30,975

Property, plant and equipment, net

2,480 2,267

Investments 837 895

Deferred income taxes 2,454 1,325

Goodwill 4,499 1,706

Other assets 2,320 1,425

Total assets $34,812 $38,593

Liabilities and stockholders’equity

Notes payable and current portion of long-term debt

$ 332 $ 1,693

Balance Sheet

December 31

(In millions, except per share amounts)

2007 2006

Accounts payable 4,167 5,056

Accrued liabilities 8,001 8,676

Total current liabilities 12,500 15,425

Long-term debt 3,991 2,704

Other liabilities 2,874 3,322

Stockholders’ equity

Preferred stock, $100 par value

— —

Common stock, $3 par value 6,792 7,197

Issued shares: 2,264 2,399

Outstanding shares: 2,236 2,397

Additional paid-in capital 782 2,509

Retained earnings 8,579 9,086

Non-owner changes to equity (706) (1,650)

Total stockholders’ equity 15,447 17,142

Total liabilities and stockholders’ equity

$34,812 $38,593



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Statement of Cash Flows


(In millions) 2007 2006 2005

Operating

Net earnings (loss) $ (49) $ 3,661 $ 4,578

Less: Earnings from discontinued operations 56 400 59

Earnings (loss) from continuing operations (105) 3,261 4,519

Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:

Depreciation and amortization 903 558 540

Non-cash other charges 213 49 106

Share-based compensation expense 315 276 14

Gains on sales of investments and businesses, net (50) (41) (1,845)

Deferred income taxes (747) 838 1,000

Change in assets and liabilities, net of effects of acquisitions and dispositions

Accounts receivable 2,538 (1,775) (1,303)

Inventories 556 (718) (19)

Other current assets (705) (388) (721)

Accounts payable and accrued liabilities (2,303) 1,654 2,405

Other assets and liabilities 170 (215) (388)

Net cash provided by operating activities from continuing operations

785 3,499 4,308

Investing

Acquisitions and investments, net (4,568) (1,068) (312)

Proceeds from sale of investments and businesses 411 2,001 1,538

Capital expenditures (527) (649) (548)

(Continued)


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(In millions) 2007 2006 2005

Proceeds from sale of property, plant and equipment 166 85 103

Proceeds from sales (purchases) of Sigma Fund investments, net 6,889 (1,337) (3,157)

Proceeds from sales (purchases) of short-term investments 8 (476) 8

Net cash provided by (used for) investing activities from continuing operations

2,379 (1,444) (2,368)

Financing

Net proceeds from (repayment of) commercial paper and short-term borrowings

(242) 66 11

Repayment of debt (1,386) (18) (1,132)

Net proceeds from issuance of debt 1,415 — —

Issuance of common stock 440 918 1,199

Purchase of common stock (3,035) (3,826) (874)

Excess tax benefi ts from share-based compensation 50 165 —

Payment of dividends (468) (443) (394)

Distribution from (to) discontinued operations (75) (23) 283

Net cash used for fi nancing activities from continuing operations

(3,301) (3,161) (907)

Effect of exchange rate changes on cash and cash equivalents from continuing operations

73 148 (105)

Discontinued Operations

Net cash provided by (used for) operating activities from discontinued operations

(75) (16) 297

Net cash used for investing activities from discontinued operations — (13) (16)

Net cash provided by (used for) fi nancing activities from discontinued operations

75 23 (283)

Effect of exchange rate changes on cash and cash equivalents from discontinued operations

— 6 2

Net cash provided by (used for) discontinued operations — — —



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(In millions) 2007 2006 2005

Net increase (decrease) in cash and cash equivalents (64) (958) 928

Cash and cash equivalents, beginning of year 2,816 3,774 2,846

Cash and cash equivalents, end of year $ 2,752 $ 2,816 $ 3,774

Cash Flow Information

Cash paid during the year for:

Interest, net $ 312 $ 322 $ 318

Income taxes, net of refunds 440 463 703


Motorola’s Strategies Motorola’s current strategies are framed around efforts to return the firm to profitability. In the past couple of years there has been much discussion about spinning off the Mobile Devices segment as an independent company, similar to what Motorola had previously done with Free Scale. In a press release, Greg Brown stated the following: “Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus—as well as more targeted investment opportunities for our shareholders.”95 However, as a result of the 2008 economic downturn, Motorola post-poned the spin-off until the third quarter of 2009.96

Motorola is going to direct its efforts to better under-stand consumer demand.97 In addition, it plans to pursue a product upgrade cycle and initiate operational changes to cut costs and make the company leaner.98 This entails cutting approximately 3,000 jobs—2,000 of which will be from the handset division.99 In addition, Motorola is considering reducing its emphasis on the European market.100

Motorola also invested heavily in the newly devel-oped WiMax technology.101 There are high expectations for WiMax as the next-generation wireless technology because it supports high-speed data transmission.102 WiMax is capable of transmitting data at speeds from 1 to 5 megabits per second.103 Furthermore, it works on

a radius of over 20 miles.104 Motorola believes compet-ing in this technological and product domain is crucial for its mobility strategy.105 In November 2008, Motorola announced the deployment of its first trial network in Vietnam.106 Dr. Ray Owen, head of Technology for Asia and general director of Motorola Vietnam, said: “Launching the trial network for Vietnam Datacommunications Company is another milestone in Motorola’s long history of leading WiMAX develop-ment in the industry.”107

Historically, Motorola has not limited the number of operating systems it supports in the Mobile Devices segment. However, recently the firm reduced the number of operating systems it supports to only P2K (Motorola’s legacy platform for low-end devices),108 Windows Mobile, and Android.109 Motorola has been a featured partner with Google since the inception of the Android platform alliance.110 Android will feature social networking applications such as Facebook and MySpace.111 Moreover, analysts believe that social net-working phones are expected to be a hit with the 16- to 34-year-old age segment, expected to comprise 23 per-cent of cell phone users by the end of 2012.112

Motorola’s cost-reduction actions may expose the firm to additional risks.113 Similar to most firms in this very competitive market, Motorola is confronted with an uncertain future.



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Case 17: M

oto

rola, Inc.

235

The Future for MotorolaMotorola has struggled to maintain pace with the change in technology that consumers desire. Indeed, the firm has struggled to have a top-performing prod-uct within the Mobile Devices segment since its intro-duction of the RAZR. Will a spinoff of this division

help the rest of Motorola’s business improve its finan-cial performance? Can the new CEO and top-manage-ment team establish a positive reputation and limit the turnover that has taken place in upper management since he took over? These and other questions are at the forefront of the minds of the board of directors and stockholders alike.

1. 2008, Motorola Inc Timeline, Motorola Inc, http://www.motorola.com. 2. 2008, Motorola – Early History, Free Encyclopedia of Ecommerce,

http://ecommerce.hostip.info/pages/751/Motorola-Inc-EARLY-HISTORY.html.

3. Ibid. 4. 2008, Motorola Inc. Timeline. 5. 2008, Motorola Inc.—Early History. 6. 2008, Motorola Inc. Timeline. 7. Ibid. 8. 2008, Motorola Inc.—Early History. 9. Ibid.10. 2008, Motorola Inc. Timeline.11. Ibid.12. 2008, Motorola Inc.—Early History.13. 2008, Motorola Inc. Timeline.14. Ibid.15. Ibid.16. Ibid.17. Ibid.18. 2008, Motorola Inc.—Early History.19. Ibid.20. Ibid.21. 2008, Motorola Inc. Timeline. 22. Ibid.23. 1990, Paul Galvin: Motorola, American National Business Hall of

Fame, http://www.anbhf.org/laureates/pgalvin.html. 24. 2006, Illinois Hall of Fame; Paul Galvin, Illinois Review, http://

illinoisreview.typepad.com/illinoisreview/2006/11/illinois_hall_o_2.html.

25. 2008, Motorola Inc. Timeline.26. 2008, Motorola Inc., Encyclopedia Britannica, http://www

.britannica.com, November 30. 27. 2008, Motorola Inc. Timeline.28. 2008, Motorola Inc.—Early History.29. Ibid.30. 2008, Motorola Inc. Timeline.31. Ibid.32. 2008, Motorola DynaTAC—35th Anniversary, Motorola Inc., http://

www.motorola.com.33. 2008, Motorola Inc. Timeline, Motorola Inc., http://www.motorola

.com/content.jsp?globalObjectId=7632.34. 2008, Motorola Inc. Timeline, Motorola Inc., http://www.motorola

.com/content.jsp?globalObjectId=7632.35. 2008, Six Sigma: Motorola does it right, Motorola Inc., http://www

.motorola.com.36. 2008, Motorola Inc. Timeline.37. Ibid.38. Ibid.39. Ibid.40. Ibid.41. Ibid.42. Ibid.43. 2008, 20 Moments in Motorola History, ChannelWeb, http://www

.crn.com/networking/206906014;jsessionid=F0MYJEPAOMV5UQSNDLPCKH0CJUNN2JVN?pgno=3.

44. Ibid.45. 2008, Motorola Inc. Timeline.46. 2008, CCID Consulting reviews Motorola performance in the

mobile phone market, Reuters, http://www.reuters.com, June 11.47. 2008, 20 moments in Motorola history.48. Ibid.49. 2008, Motorola Inc. Timeline.50. 2008, 20 moments in Motorola History.51. Ibid.52. Ibid.53. 2007, Motorola names Greg Brown CEO, BusinessWeek, http://

www.businessweek.com, November 30.54. A. Dannin, 2008, Motorola Inc., http://library.morningstar

.com.ezproxy1.lib.asu.edu/stocknet/MorningstarAnalysis

.aspx?Country=USA&Symbol=MOT.55. 2008, Motorola Inc. company description, BusinessWeek, http://

investing.businessweek.com.56. 2008, Motorola 2007 Annual Report, http://www.motorola.com.57. 2008, Form 10-Q: Motorola, Inc., United States Securities

and Exchange Commission, http://sec.gov/Archives/edgar/data/68505/000095015208008426/c47113e10vq.htm.

58. Ibid.59. Ibid.60. 2008, CDMA – Code Division Multiple Access, Birds-Eye.net, http://

www.birds-eye.net/definition/c/cdma-code_division_multiple_access.shtml.

61. 2008, UMTS – Universal Mobile Telecommunications System, Birds-Eye.net, http://www.birds-eye.net/definition/u/umts-universal_mobile_telecommunications_system.shtml.

62. 2008, Motorola Inc. company description, BusinessWeek.63. 2008, Form 10-Q: Motorola, Inc.64. 2008, Motorola Inc. company description.65. 2008, Form 10-Q: Motorola, Inc.66. 2008, Nokia Annual Report, http://www.nokia.com; 2007, Nokia

in 2007, Nokia, http://media.corporate-ir.net/media_files/irol/10/107224/reports/ann_acc_2007.pdf_.

67. Samsung Electronics 2007 Annual Report, http://www.samsung.com.

68. Ericsson Annual Report 2007, http://www.ericsson.com.69. LG Annual Report 2007, http://www.lg.net.70. 2008, About LG: Mobile communications, http://www.lge.com.71. 2007, Apple Form 10-K, Securities and Exchange Commission,

http://www.sec.gov, December 31.72. Research in Motion 2008 Annual Report, http://www.rim.net.73. 2008, RIM: Company, Research in Motion, http://www.rim.com.74. 2008, Helio, Inc, and Helio LLC Exhbit 99.1, Helio, http://

documents.scribd.com/docs/qk9y5wyxvrrcweuad2d.pdf 75. 2008, Don’t call us a phone company, Helio, http://www.helio.com.76. 2008, Mobile internet devices, Intel Corporation, http://www.intel.com.77. Ibid.78. Ibid.79. Ibid. 80. 2008, SEC Form 10-Q: Motorola, Inc, AOL Money and Finance,

http://finance.aol.com.81. Ibid.

NOTES


236C

ase

17: M

oto

rola

, Inc

. 82. Ibid.83. Ibid.84. 2008, Motorola Form 10-Q.85. T. Krazit, 2004, After delays, Motorola brings V400 to North

America, InfoWorld, http://www.infoworld.com, January 16.86. 2007, Motorola Form 10-Q.87. P. Teague, 2007, The ABCs of spend analysis: Change the way you

source, Purchasing, http://www.purchasing.com, May 3.88. J. Carbone, 2007, Time-to-Market is key, Purchasing, http://www

.purchasing.com, March 15.89. 2008, Motorola 2007 Annual Report.90. Ibid.91. Ibid.92. Ibid.93. Ibid.94. Ibid.95. Ibid.96. A. Dannin, Motorola Inc.97. J. Zounis, 2008, Motorola Inc., http://library.morningstar.com

.ezproxy1.lib.asu.edu/stocknet/AnalysisArchive.aspx?docId=234200&Year=2008&Country=USA&Symbol=MOT.

98. Ibid.99. O. Kharif, 2008, Motorola’s turnaround plans meet with skepticism,

BusinessWeek, http://www.businessweek.com, October 31.

100. Ibid.101. A. Dannin, Motorola Inc. 102. M. Reardon, 2005, Motorola, Intel team on mobile WiMax, CNET

News, http://news.cnet.com, October 27.103. Ibid.104. Ibid.105. Ibid.106. Motorola Media Center, 2008, Motorola deploys its First WiMAX

802.16e trial network in Vietnam, http://www.motorola.com, November 27.

107. Ibid.108. http://www.funambol.com/blog/capo/2008/10/motorola-focusing-

on-android-why-it-is.html.109. A. Dannin, Motorola Inc.110. D. Gardner, 2008, Motorola reportedly trimming operating systems

in favor of android, Information Week, http://www.informationweek.com, October 29.

111. O.Kharif, 2008, Motorola readies its own android social smartphone, BusinessWeek, http://www.businessweek.com, October 17.

112. Ibid.113. Ibid.


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