Motorola: The End of the Zander Era

Ed Zander's exit was hastened by a failure to anticipate demand for 3G phones. Can Greg Brown help Motorola regain market share?

by Roger O. Crockett

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You could sense it coming. The departure of Motorola (MOT) Chief Executive Ed Zander seemed imminent as the company's bread-and-butter mobile-phone unit spiraled downward for more than a year. The market-share losses have become so pronounced that researcher Gartner (IT) recently said Motorola, long the second-largest maker of cell phones, behind Nokia (NOK), had fallen to No. 3, behind Samsung, whose 14.5% share now trumps Motorola's 13.1%.

So there was little surprise when Motorola announced on Nov. 30 that Zander, 60, will step down as chief executive on Jan. 1. Into the hot seat steps current President and Chief Operating Officer Greg Brown, 47, a possibility BusinessWeek noted in July (BusinessWeek, 7/30/07).

Zander will remain chairman until the company's annual shareholder meeting in May, 2008, and then serve as a nonexecutive adviser to Brown until January, 2009. "I had a vision in my mind that four years would be it," Zander said in an interview. "I told that to the board when I joined. A couple of years into this, we started to do succession planning and identified Greg as the guy that could lead this company."

Riding on the Razr's Edge

Since joining Motorola in 2003, Brown has led several of the company's key businesses, including the telecom infrastructure business and the government equipment business. He also headed the $3.9 billion acquisition of enterprise gearmaker Symbol Technologies, the company's second-largest transaction ever.

As chief of Motorola's automotive business, he returned that unit to profitability and then spun it off and sold it to Continental for $1 billion. "We gave him just about every tough assignment that there is in this company," Zander says. "He took cost out of all those groups and hired great people."

But restoring luster to Motorola's ailing cell-phone business will take more than cost-cutting skill. After the Razr's roaring debut in 2004, Motorola quickly gained share and became an industry darling. By the middle of 2006, some speculated that Motorola would soon overtake Nokia as the world's top-selling cell-phone maker. But later that year, its fortunes began to sink.

Missed Market and Supplier Trouble

Under then-phone-czar Ron Garriques, Motorola focused on grabbing share. But the strategy backfired as margins shriveled. Worse, Motorola executives failed to read the market correctly, miscalculating what sorts of phones consumers and its carrier customers wanted most. By 2007, especially in overseas markets, consumers were thirsting for so-called third-generation, or 3G, phones that can handle a variety of multimedia functions, including sharing picture and video files, storing loads of music, playing interactive games, and surfing the Web smoothly.

If the triumph of Zander's era is that he provided the urgency and vision to get Razr out the door quickly and sell it widely, the real tragedy of his tenure is that the company missed the transition to the next generation of phones. "There was a complete misreading of the market in terms of what carriers wanted to buy," says Ittai Kidron, an analyst with CIBC World Markets. "They still aren't competing in that 3G market." Kidron estimates that Motorola is selling less than 1 million units a quarter in 3G phones, while Nokia is selling 15 million to 18 million.

To its detriment, Motorola also tied itself to a supplier that couldn't deliver cutting-edge components. Motorola bought its chips, the brains of the phone, from Freescale Semiconductor, a company it spun off a few years earlier. But Freescale couldn't deliver 3G chips that were small, powerful, and didn't hog battery strength.