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COMMENTARY: MOTOROLA: SLOW AND STEADY ISN'T WINNING ANY RACESIn moments of uncertainty, Motorola (MOT) Chief Executive Christopher B. Galvin often seeks counsel from members of his board, including his father and former CEO, Robert W. Galvin. The senior Galvin is always ready with this advice: Regardless of how difficult things appear to be, the issues are solvable if you stick to the fundamentals. If only the fundamentals would stand still. With each passing quarter, it seems, Motorola finds it harder to muster the velocity that today's digital markets demand. And now, Galvin's turnaround plan seems cautious and out of step compared with the bold and swift gestures of his rivals. Although he expects the company to return to profitability by the fourth quarter, Galvin insists: ''It will take some time, a year or two, to work our way through all the issues.'' PLATITUDES. Trouble is, Galvin needs results today. In cell phones, the company is losing share to competitors Nokia Corp. (NOK.A) and L.M. Ericsson (ERICY). It's seriously late with the next generation of phones. And the chip picture is even gloomier. Galvin thinks he can stanch losses in his floundering semiconductor unit by farming production out to contractors. But to do that, he'll have to quickly sign some contracts. Says Don Warkentin, CEO of Motorola customer Aerial Communications Inc.: ''Others do tend to move faster than they do.'' Since assuming the top post in January, 1997, the 48-year-old Galvin has made several moves that look right--on paper. He has announced cost-cutting goals and a companywide restructuring. He has consummated some high-powered partnerships and promised to speed up product development. But, for all that, Galvin remains vague and offers little more than platitudes on the key issue: Can Motorola get its execution act together? ''The majority of the company is executing very well,'' he maintains. ''A lot of people say, 'Why don't you have this one version of a phone?' That doesn't mean the rest of the company isn't executing superbly.'' If it is executing superbly, the evidence isn't visible. Instead, the company's performance has been erratic, which has tried Wall Street's patience. Motorola's stock has cratered 40% during the past year and now hovers at $51 per share. ''Management credibility has become an issue,'' says Susan Flischel, chief investment officer for the equities division of Countrywide Investments Inc., an institutional investor holding about 25,000 shares. ''There's a question as to whether they can turn things around.'' Motorola remains far behind on the digital curve with rivals beating it to the punch. On July 21, for example, the company unveiled an impressive lineup of cell phones. Yet the most popular models--phones that handle both analog calls and digital calls at two radio frequencies--won't be ready by Christmas, when 40% of all cell phones are sold. ''That's late--big-time late,'' says Jane Zweig, senior vice-president for wireless telecom consultant Herschel Shosteck Associates Ltd. Galvin admits to missing the move to digital phones in the U.S. He says the recent reorganization of the company's communications businesses will help it get new phones out faster. ''We've brought the entire communications business together so we can reprioritize the investment to make sure it goes on those propositions the marketplace says are most important. We believe that will solve the problem.'' WIRELESS LINKS. But Motorola has a bigger problem still. It seems to be making the same mistake it made when it introduced its hot StarTAC in January, 1996: pricing the new phones so high they'll never reach the masses. Motorola's new slim V-series phone will retail for $500 or less, according to Merle L. Gilmore, president of Motorola's newly consolidated communications enterprise. The average selling price for digital phones in the U.S. is $150 to $200, Zweig says. ''Is there enough value in this cute, new little phone?'' Zweig wonders. Motorola's idea of value is expected to emerge from the company's recent acquisition of Starfish Software, Silicon Valley specialists in linking data between mobile devices and computers. Thanks to Starfish, Motorola says, phones released within the next 18 months will store addresses, telephone numbers, and other data, just like 3Com Corp.'s (COMS) Palm organizer. And the software makes it possible to update a list on your phone and have it automatically update similar lists in your office or home PC--all over a wireless channel. But if the future is in software, does Motorola need to be in the business of making cellular handsets? Currently, Motorola's slice of key U.S. cellular markets, such as TDMA and CDMA, languishes near single digits--well below the double-digit shares of Nokia and Qualcomm Inc. (QCOM). And the market is about to get a lot tougher as nimble competitors such as Samsung Electronics Co. rush in. Indeed, Motorola may have fallen so far behind rivals offering whizzier features that manufacturing cellular-phone handsets could be a commodity game that the company can't win. A solution: focus on designing handsets and cutting-edge chips that power smart phones, but let others build the handsets. The company already does some outsourcing in Korea, where Pantech Co. builds a Motorola phone. Extending that strategy would cut costs and speed up the delivery of new products. Says Bob Egan, director for wireless research at consultant Gartner Group Inc.: ''They need to get the heck out of spending lots of development money on handsets.'' Galvin isn't ruling out such a possibility, but no change is imminent. FLAT CHIPS. Motorola also needs a strategy to build a more competitive cellular-infrastructure business. For years, the company has been hampered by not having its own switch, the big computer that directs cellular calls. Worse, future wireless networks will be based on fast routers that converge data with voice traffic, a narrowing but still big gap in Motorola's portfolio. Yet Galvin has let rivals beat him in the race to acquire this kind of networking expertise. Nortel Northern Telecom Ltd. (NT) recently bought Bay Networks (BAY), a company that specializes in high-capacity routers. Motorola has yet to make a similar move. The furthest Galvin has gone is to discuss alliances with networking powerhouses Cisco Systems Inc. (CSCO) and 3Com. The area in the most urgent need of repair is the semiconductor division. Beset by soft demand and pricing pressure in Asia, the company's chip business has flattened, slipping from $8.5 billion in sales in 1995 to $8 billion in 1997. But Galvin hasn't been quick to trim fat. Despite a semiconductor reorganization, Motorola still has one of the broadest chip portfolios in the business with about 40,000 different chips. The goal is to reduce that by 50% within the next 18 months. Still, Galvin needs to do more to beat Lucent Technologies Inc. and IBM, both of which are running profitable microprocessor segments, even in an industry downturn. The outsourcing solution applies here, too. Motorola could design its chips but let other manufacturers build them. By farming out production of non-core chips, the company could slash semiconductor capital expenditures and depreciation expenses, both now more than $1 billion and the highest of any Motorola sector. Galvin says he continues to evaluate which of Motorola's older plants to shutter. Over time, he says, the company will blend in-house production with outsourcing. ''When you're in renewal, like we are,'' he says, ''there should be no orthodoxy that holds you to the old way.'' Marketplace to Galvin: The new way needs to arrive fast.
By Roger O. Crockett RELATED ITEMS
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Updated July 30, 1998 by bwwebmaster
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