CHICAGO-The status of Motorola Inc. has been the hot topic of the week.
Again.
First, reports surfaced that the vendor was preparing a corporate restructuring that would separate its various businesses into two divisions-an industrial products group and a consumer products group-ending the internal competition fostered to date.
Shortly after that, Jack Scanlon, head of Motorola’s Cellular Networks and Space Sector-which oversees the Cellular Infrastructure Group, Network Management Group and Space and Systems Technology Group-announced he was leaving the company to become chief executive officer of fiber-optic telecom system provider Global Crossings Ltd.
The stories cap months of press about Motorola’s recent loss of market share and customer complaints. Taken together, one might wonder just what is going on-is this a sign of problems at Motorola or merely a sign of the times?
The wireless industry has changed quite a bit since Motorola’s heyday. Whereas Motorola was once the big boy of the wireless block, the popularity of wireless services has increased the size of the market and made room for other players.
“Traditionally, Motorola has been viewed as the king of all wireless,” said Brian Cotton, manager of wireless research at Frost & Sullivan. “When you get something that attractive, it will attract the attention of lots of other competitors. While Motorola still has an overall dominance, it is feeling the pressure of more competitors.”
At the same time, the wireless paradigm has shifted from analog transmission to digital telephony, be it cellular or personal communications services. Motorola remains the undisputed leader of wireless analog equipment but is struggling to match that record with digital goods.
David Kerr, director of wireless programs at Strategy Analytics, defined Motorola’s domestic digital handset performance as abysmal. “Motorola missed the boat in that (it) has failed to deliver a (Code Division Multiple Access) product successfully,” he said. “The concern is will (Motorola) be able to reestablish a leading position in a digital world?” he asked.
According to recent Yankee Group findings, Motorola fell from a 34-percent market share in the combined analog/digital handset market in 1996 to 25 percent in 1997. In comparison, competitors Nokia Corp. rose from 19 percent to 20 percent and L.M. Ericsson from 17 percent to 18 percent.
Philip Redman, senior analyst at the Yankee Group, said these figures represent Motorola’s dominant role in the shrinking analog handset market, which he expects to drop from 12 million units sold last year to 9 million this year. Those numbers will be replaced by a rise in digital handsets, a market in which analysts say Motorola commands less than 10 percent.
On the infrastructure side, the Yankee Group named Lucent Technologies Inc. the domestic winner last year with 38 percent, followed by Ericsson with 23 percent, Northern Telecom Ltd. with 21 percent and Motorola with 13 percent.
Motorola must “get closer to operators. The issue is not so much hardware, but the software and services required to help operators get more revenue. Motorola is not getting as close to customers as they should,” Kerr commented.
But to count Motorola out would be folly, analysts said.
“In the near-term, I think its an unavoidable reality,” that Motorola will lose market share, said Cotton. “In the long-term, Motorola can address these issues and get back a bigger market share.”
Motorola spokesman Albert Brashear said this will be the case. “I see Motorola as the leading digital wireless communications provider in the world,” he said. “If you look at our track record, in any of the formats of cellular where we have chosen to focus our abilities, we are very competitive.”
Brashear admitted the company has had its challenges and made its mistakes. “It is true that we have very good competitors and I will acknowledge the fact that we were tardy in converting from analog to digital in certain markets,” he said. “It can’t help but erode our overall market share.” But “We are now moving fully to a more rapid progression from analog to digital.”
Which brings the restructuring process into play. Under its traditional structure, Motorola’s paging, cellular and two-way radio businesses operate as distinct groups, each with its own infrastructure and handset divisions. These groups compete with each other. Cotton said he believes the idea was to put the business units in competition with each other to “bring the level of performance up.” It worked to the extent that it brought Motorola to a leadership position.
Motorola’s CEO Christopher Galvin has made no secret about his wish to end this “warring tribes” system in favor of a more cooperative company since he assumed the helm.
“It’s certainly no secret inside the company,” Brashear said. “We discussed it openly at our recent officer’s meeting and have talked to the staff about it.”
As reported, the restructuring would combine the similar functions of these separate groups into their own divisions. So there would be one industrial division that sold cellular, paging and two-way radio infrastructure to corporate clients and a separate division for all paging, cellular and two-way radio handset sales.
Analysts feel the restructuring would be a positive one.
“If they (the rumors) hold any water, they’re a pre-emptory move to get people at Motorola to stop being at odds with each other and start helping each other,” he said. “For them not to group their synergies would not make sense.”
But Brasher downplayed the importance given to the restructuring so far. He said the company merely asked itself “Let’s make sure that our organizational charts are not drawn in such a way where we are not taking advantage of the convergence of technologies,” he said. The reorganization, if and when it happens, is more about leveraging the similarity of technologies than it is about reducing internal competition in the face of mounting external competition.
“There’s no question our competition is better and different than it was in the past,” Brashear said, but that is only a small part of the reason Motorola wants to end its warring-tribes culture. “In today’s environment, given what’s happening with technologies, we’re putting it behind us.”
Still, when a company changes gears like Motorola is expected to, it needs powerful executives who not only believe in the change, but have the leadership ability to convince the rank-and-file to go along with it, analysts said. Scanlon was such an executive and his departure may affect the restructuring.
“I think that throws a wrench in their plans,” Cotton said. “In my opinion, he would have been the front runner for the industrial section.”
But Brasher said Scanlon’s departure would not delay the restructuring timetable because “there is no timetable.” He said there is no set-in-stone restructuring plan at present, but would not be surprised if one occurs. “We all expect that it will happen and will be surprised if it doesn’t.”
Despite its challenges in the domestic marketplace, analysts feel the company remains a global powerhouse.
“Motorola was and still is the 1,000-pound gorilla in the wireless device marketplace.” said Kerr. “It has a much broader international presence than the others.”
Motorola’s saving grace is that the U.S. digital marketplace is lagging behind right now, which gives Motorola some time to catch up. “The U.S. no longer defines the competitive battleground,” Kerr said.
Yet critics will continue to target Motorola as long as it remains the standoffish giant that it is, analysts said. “Motorola is the AT&T of the wireless systems market,” Kerr said. “They have not done a good job of fostering a community of development. They have not done a good job of pa
rtnering with others in the industry.”
Motorola often is seen as arrogant, which sets up a dynamic in which any flaw might be e
xploited, Cotton said. “The most unstable position in the world is the one at the top.”
