Motorola needs a quick fix: analysts

CHICAGO: Motorola Inc. must quickly name a successor and map out a clear strategy following the surprise exit of its chairman Friday or the expected boost in the company's stock price this week could be short-lived, analysts and investors said.

"There are some serious strategic questions they need to answer," Shawn Campbell, principal with Chicago-based Campbell Asset Management, which holds Motorola preferred shares, said of the board. "There's a lot of wood to chop here."

Motorola director John Pepper told Reuters in an e-mail Sunday that the search committee of which he is a member will consider all options for a new leader.

The company has not hired an executive search firm, a Motorola spokeswoman said. The board said Friday internal and external candidates would be considered and the search has begun to replace Chairman and Chief Executive Christopher Galvin.

Pepper, in his e-mail, said he would not speculate how Galvin's departure would affect the world's No. 2 cell phone maker. He did not provide an explanation of the board's vision and the disagreements with Galvin, who announced his retirement Friday from the company.

Several analysts and a number of investors said Motorola stock is expected to get a boost from the news, announced after the the regular stock market session close.

In after-hours trading Friday on electronic trading platform Instinet, the company's stock rose more than 2 percent to $11.33 per share from its close on Friday of $11.09 on the New York Stock Exchange.

Analysts and investors shared the view that the board needs to name a replacement quickly and clearly articulate their strategies, if the anticipated rise in the stock price is to be sustained.

ASSET SALES A POSSIBILITY?

Some industry analysts and shareholders have long called for Motorola to rid itself of the money-losing semiconductor and struggling wireless equipment units.

The differences between Galvin and the board lead analysts and investors to speculate directors are pushing for changes that Galvin resisted, including selling or spinning off units.

"Not a ton of the company is synergistic. It's just a big holding company. You could break it up five ways," said one institutional investor. He has held his shares, despite his dislike of Galvin, in the hopes of a company break-up.

Delays in naming a successor to chart the future could lead to executive turnover and indecision, as well as low employee morale, analysts and investors added. Motorola board member Pepper, in his e-mail, pointed out that Motorola's retention rate for its top executives over the last two years has been in the high 90 percent range.

Over the past year, Galvin, grandson of the company's founder, has been heavily criticized by investors for the slow pace of change at the company, which is based in Schaumburg, Illinois. At the May annual meeting, Galvin faced questions from angry shareholders, whose stock in the company has lost almost half its value since he was named CEO in 1997.

The board also was criticized then for not pushing change faster at Motorola and for its support of Galvin, who told directors after meeting with them on Tuesday and Wednesday he would retire.

INSIDER OR OUTSIDER BEST FOR COMPANY?

Opinions differ on a whether a replacement should come from inside or outside the company.

Some employees, analysts and investors tout Motorola President Mike Zafirovski as the choice to lead the company.

Known as "Mike Z," Zafirovski has a strong track record, having returned Motorola's core cell-phone unit to profits before he was promoted to his current role last year. Some argue he qualifies as an outsider because he arrived only three years ago from General Electric Co.

"It's got to be Mike Z," Campbell said. "If they don't name Mike Z, he's out of there." The worry then is other executives would follow, leading to instability when Motorola can least afford it, having recently returned to profitability.

Another option is to name Zafirovski CEO and someone else non-executive chairman, analysts said

Others are not convinced, arguing the board should name an outsider with fresh ideas, free from Motorola's insular culture and untainted by a past that saw the company lose its cell phone leadership to Finnish rival Nokia.

"You want an outsider seasoned in technology and willing to be an agent for change," said David Katz, chief investment officer of Matrix Asset Advisors, which sold its Motorola shares a year ago to invest in other technology stocks. He said Motorola is back on his radar as a possible investment.

The company should be an attractive opportunity for whoever succeeds Galvin, analysts said. "Motorola has so many resources, the possibilities of what to do with that company are a dream," Avtera Management analyst Tom Lauria said.

Galvin will remain in place until his replacement is hired, a prospect that leaves some analysts and investors unsettled. They fear his "lame duck" status will lead to questions about who is in charge and whether business will suffer.

© Reuters