Zander in hot water over poor sales

Motorola Inc Chief Executive Officer Ed Zander's job is in danger after sales disappointed investors for the third time this year.

The stock dropped as much as 2.5 percent in after-hours trading on Wednesday, extending a 13 percent decline in 2007, after Zander said the world's second-biggest maker of mobile phones had a loss last quarter.

Second-quarter sales fell to between $8.6 billion and $8.7 billion, below the $9.4 billion he predicted April 18.

"In this game, if you fall behind, it's hard to come back," said Matthew Kelmon, a fund manager at Kelmoore Investment Co in San Francisco, which owns more than 110,000 Motorola shares. "They need a fresh start."

Zander, 60, has failed to repeat the success of Motorola's best-selling Razr phone, released in 2004.

That has made it difficult to compete with devices from Nokia Oyj, Samsung Electronics Co and newcomer Apple Inc.

The Razr2, scheduled to go on sale this month, probably won't earn the same profit margins as other advanced phones, said Lawrence Harris, an analyst at Oppenheimer & Co in New York.

Motorola hasn't given a price yet for the Razr2, which is thinner and has more storage for songs. The original Razr sells for as little as $29.99 with a contract.

Spokeswoman Jennifer Erickson didn't return a call seeking comment after business hours on Wednesday.

iPhone envy

Harris, ranked among the most accurate telecommunications- equipment analysts by StarMine Corp, estimates that the Razr2 will sell for about $199 with a service contract, about a third the price of Apple's most-expensive iPhone.

The iPhone sold as many as 700,000 units in its first weekend after going on sale in the United States on June 29, according to analysts such as Goldman Sachs Group Inc's David Bailey.

Shares of Motorola, based in Schaumburg, Illinois, shed as much as 44 cents to $17.51 in extended trading on Wednesday.

They rose 33 cents to $17.95 in regular New York Stock Exchange composite trading.

Sony Ericsson Mobile Communications Ltd, which also reported results, said second-quarter profit rose 54 percent.

The fourth-largest maker of mobile phones cited demand for its handsets, such as the thin W880i music-playing device.

Motorola had a loss of as much as 4 cents a share, according to its preliminary report yesterday. The company had forecast earnings of 2 cents to 3 cents, excluding some costs. It will issue full results July 19.

"People were expecting a bad quarter and got worse than they were even looking for," said Mark McKechnie, an analyst at American Technology Research in San Francisco who worked at Motorola in the late 1980s. He has a "neutral" rating on the stock and doesn't own it.

The results fit a pattern for Motorola, he said, so the fault may not be Zander's.

"They like to put up a hot product every five years or so, then go back to the drawing board," McKechnie said. "To paint it all on the CEO is probably a little excessive."

Motorola invented the wireless phone and once dominated the business.

It fell to a distant second behind Nokia under the leadership of Chris Galvin, the grandson of Motorola's founder.

Zander replaced Galvin in January 2004 and oversaw a rebound in sales and earnings, spurred by the Razr. Now investors may be losing patience with Zander, a Brooklyn-born engineer who earned a master's degree in business administration at Boston University by taking night courses.

"A lot of investors feel Ed Zander may want to consider getting out of Motorola and bringing in new blood," said Pablo Perez-Fernandez, an analyst with Global Crown Capital in San Francisco.

"He's done a poor job getting the company through successors to the Razr and hasn't articulated a strategy for how the company can regain its luster, other than cutting costs."

Losing market share

Motorola reported its first loss in almost three years in the first quarter after Nokia and Samsung won market share with new devices.

Motorola's share slid to 18 percent, while Nokia's widened to 36.2 percent, according to research firm Strategy Analytics. That was Nokia's biggest lead since 2004.

Zander seeks to turn the business around by eliminating 7,500 positions and cutting costs by $1 billion.

Investors such as billionaire Carl Icahn have criticized him for failing to revive mobile-phone sales. In May, Zander defeated Icahn's bid for a seat on the board.

Bloomberg News

(China Daily 07/13/2007 page16)