Monday Note

Once upon a time, Motorola was the king of cell phones. AT&T invented the cellular network, Motorola, already a leader in radio technology, designed the mobile devices and, in 1983, introduces the Dyna-Tac, the first of a long line of clearly superior products, all ending in Tac.  In the late eighties and nineties, MicroTacs and StarTacs were musts for Silicon Valley geeks and MBAs alike.  Motorola’s prowess was, in fact, much wider, ranging from NASA communication equipment to microprocessors (6800, 68000 and PowerPC families) and networking equipment.  The company even made yet another name for itself by inventing the Six Sigma quality improvement processes.  Motorola was a widely admired electronics giant.  Was.
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Last week, yet another CEO, Sanjay Jha, announced yet another change of strategy amidst gloomy numbers, a 30% decline in shipments and a 3,000 people layoff.
Let’s not rehash the long decline, the revolving door CEOs, the spun-off product lines; let’s focus instead on Motorola’s future in light of last week’s announcements – and under the cloud of combined economic and competitive threats.
The first jarring announcement was doing a 180 degrees on the cell phone spinoff.  Earlier this year, Motorola let it be known it planned to dump the problem child just as it “freed”, pardon, divested another business, microprocessors and other semiconductors, creating the independent Freescale. The cell phones divestiture was confirmed last August when Sanjay Jha was hired away from Qualcomm as Motorola’s co-CEO (the other co- being Greg Brown), precisely to head the spun off mobile business.  But last week, we hear that while “the strategic intent remains intact”, the spin off is delayed sine die, no statement of a new date.  This is either bizarre or completely straightforward.
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On the bizarre side, the reason for the spinoff was and remains disentangling two incompatible cultures: the professional equipment business, tactical radios for the military and firefighters, network gear for carriers or cable operators, one the one hand, and the consumer, high-tech high-touch mobile phones.  It’s been often said that culture eats strategy for business, the spinoff makes healthy cultural and, therefore, business sense.  So, why the sudden change of mind?  What is the simplest explanation for the turnabout?
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Sanjay Jha was charmed away from Qualcomm, he did as much due diligence as he could, plumbing the depths of Moto’s cell phone problems. But we all know how it goes during such courtships.  The hiring company is anxious to get the white knight and will put lipstick on the you-know-what.  The candidate sees himself as CEO and savior, and drops his guard, his cynicism just a little bit: Sure, thanks for reminding me, it’s ugly, but it’ll make me look good when I fix it.  (I know, my first two CEO jobs were turnarounds…)  But, once on the job, the “actually” (a.k.a. Oh S#*t!) come in at fast clip.  What do you mean we won’t have an Android phone until Christmas ’09?  Well, Chief, we thought we’d have it done by Spring but, you know, we lost some key engineers, the Android platform (see Monday Note #57) isn’t ready for prime time yet, our Linux team is demoralized and Microsoft isn’t happy with us…  In other words, the new boss meets reality and doesn’t like what he sees.  In particular, doing a spinoff is more complicated than just separating Siamese twins joined at the hip.  Conglomerates may or may not reveal the extent of problems in a division.
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But when the division becomes a separate company, a publicly-traded one, as was the case with Freescale, the scales come off the shareholders’ eyes, or they should.  Here, the spinning company, Motorola in our case, feels the projected spectacle will be too ugly for stock-market consumption.  The losses, the disorganization, the scattered-brain strategies, note the plural, would become too obvious to bear.  Sanjay Jha, his attorneys and accountants, must have all recoiled in fear of public exposure.
Second, in keeping with the above, we have cryptic product strategy pronouncements: P2K for the low-end, Windows Mobile at the high-end and Android in the middle.  You guessed it, we’re talking cell phone software “platforms”, let’s just say operating systems, software engines.  It sounds neat and rational but, on second look, doesn’t make practical sense.
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Let’s start at the low-end.  Why in the world should Motorola spend money on a low-end software platform? Today, you can go to Taipei or Guangzhou, check in at a good hotel and twelve ODM (Original Design Manufacturers) cell phone suppliers will find out you’re in town and call.  These are smart, respectable, entrepreneurial companies of the highest quality.  Precisely.  How can Motorola expect to compete at low end with its own software for basic phones, with little opportunity for feature differentiation?  In other words, Motorola can spend money doing low-end software for vanilla low-end phones, or become a mere reseller of other peoples’ phones.  Either way, no money-making strategy at the low-end, too late.
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Turning to Android and Windows Mobile.  Why both? This makes more sense when put in the context of Motorola’s ditching its previous Linux work.  Sanjay Jha has decided that Android isn’t ready yet for prime time, lacking features such as Exchange sync.  Windows Mobile provides such corporate e-mail features but affords little in the way of product differentiation, features that Moto must have to distinguish itself and to get more revenue and profit as a result. Windows Mobile is a stopgap.  Longer term, Motorola looks at the Open Source Android as a way to better express its identity, its unique views of hardware and software functions, they speak of a social networking smartphone.  Nice theory, because it can work, but one that is hardly unique: every smartphone maker using Android has the same one and only idea: this Open Source platform is a way to get our own set of hardware and software features.  Let’s just add: with a strong helping of Google Cloud services.
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Neat, clean, but in no way different of any of the ODM mentioned above, many will use Android in exactly the same manner. They have agility, low-cost – and their number – on their side.  Just as the smartphone is the next PC, the really personal computer, we have the PC clones, we could have an industry of Android clones, or Windows Mobile ones if Microsoft changes its game.  How would Motorola survive in such a world?  In the world of PC clones, HP manages to do it, and to do it very well.  But, based on its stumbles, on its demonstrated cultural shortcomings, one must ask the question: How will Motorola, I mean the part that once was the king of cell phones, survive?
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The professional part of the business isn’t facing the same challenges.  –JLG
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