Motorola Is Unlikely To Recover On Its Own

Motorola's recent announcement of a profit in Q2 2009 was due to the notorious phenomenon of "one time" factors, which by definition are not a basis for long term improvement. The performance of all its units in terms of revenues was grim, even given current broad economic hardships. It is hard to detect any signs of or reasons for significant improvement in the company's position in the near or medium term.

Motorola  shipped 14.8 million handsets in Q2 2009, giving it only an estimated 5.5% market share (it was around 18-20% two years ago). Meanwhile the two Koreans - Samsung and LG - continued to grow their shipments and market shares as they chase the market leader, Nokia. At a group level, one-time gains (including a legal settlement) helped Motorola post net income in Q2 2009 of US$26 million overall, compared with US$4 million a year ago, on total sales of US$5.5 billion, a decrease of 32 percent. Total cash at the end of the second-quarter was US$6.5 billion, an increase of US$360 million compared to the end of the first quarter but still down from 2008. In its other divisions, sales of the "Home and Networks Mobility" segment were US$2 billion, down 27 percent year-on-year, and of the “Enterprise Mobility Solutions” segment US$1.7 billion, down 17 percent. So none of its businesses are showing any signs of strength. These results reportedly beat "analysts’ expectations", but the expectations were set extremely low, rather like those for some politicians who are praised when they actually manage to utter one grammatical sentence that arguably includes a modicum of rational thought and is more than an incoherent repetition of meaningless and misleading sound bites. Nevertheless as seems to be almost a required response or an autonomic reaction by  analysts, they  have seen signs of hope in Motorola's cost cutting efforts, which included among other factors a 26% reduction in R&D expenses. But sometimes cutting R&D can be very destructive for a company's future, quite the opposite of a sign of progress or a harbinger of improvement. It is not clear whether the hopes now being pinned on new products to reverse the company's precipitous and until now inexorable decline are consistent with this reduction in R&D (the argument put forth in its favor is of course based on achieving a greater and hence more productive  focus on a more limited set of programs), or whether, as turned out to be the case with Nortel, the company has already gone past the point of no return in its current configuration. The major development initiatives visible from Motorola are Android-based handsets and involvement in TDD-LTE trials with China Mobile. The differentiation required to turn the company around, which would have to generate billions of dollars of new revenues, is not apparent   It is at least as if not more likely that Motorola's various operations will be more valuable individually to different buyers than that the company will succeed in revitalizing itself on its own. .

This author consults with leading institutions through GLG