The Case for Motorola Is Clear

There's no doubt that things aren't looking so good at Motorola(MOT) these days.

Its chip shop is up on blocks in the oil-stained driveway. The struggling company just gave the mobile-phone business its first new coat of paint in years. And the wooden infrastructure business rotting out back is a halfway house for neighborhood raccoons.

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At least the company offers wireless investors a clear-cut choice, though: Either you believe Motorola is going to come back from the edge, or you don't. On the other hand, do you know all of Ericsson's (ERICY) faults? If Nokia (NOK) is sliding in the handset business, as some fear, how would you begin to tell? Motorola has no element of surprise about it and inspires little of the rah-rah, this-will-all-be-over-shortly thinking that continues to make wireless stocks jostle around with each positive projection and earnings warning.

Motorola was in big trouble long before the market took a turn for the worse. After a few quiet quarters, two of them money-losing for the first time in years, the giant finally acknowledged the need for drastic measures. Management is being shaken up, businesses are being inspected for sale, more than 30,000 employees are being laid off and the balance sheet has been put through the wringer, emerging cleaner in the second quarter.

Moreover, Personal Communications Sector chief Mike Zafirovski has put a new face on the mobile-phone business. Once an industry leader, Motorola was unresponsive to its carrier customers and had dozens of expensively-designed and unpopular phone models. Zafirovski, though, is rekindling carriers' affections with customer service and streamlining the manufacturing side of the business to cut costs. Motorola recently turned out six snappy general packet radio service (GPRS) phones, showing the market that the giant had the labs and the design expertise to get out cool handsets for the newest network technology on the market; the company expects to sell half of the 10 million GPRS phones shipped in 2001.

The chip business is in big trouble, as are most chip businesses right now, but Motorola is doing its darnedest to make the business profitable by widening its customer base. As an example, Motorola will provide a package of GPRS chips for independent handset makers, rather than keeping its technology inside the Motorola fold. But if they can't turn around its chip business, which lost $131 million in the first quarter and $380 million in the second, in the next couple of years, Motorola executives have agreed that the business could be sold.



Next up for scrutiny is the wireless infrastructure business. The market for base station equipment is expected to be slow through 2002, as confirmed by Ericsson and Motorola in pre-Sept. 11 warnings. Motorola has missed out on the early third-generation wireless contracts, but has picked up big wins in the same area that has fueled its handset comeback -- Asia, and more specifically, China.

As reported Monday, Motorola's management is on the lookout for partners to get its products into Western Europe, offering in return its strength in CDMA networks and developing wireless markets. Management is not afraid to make a big move to jumpstart the unit.

Of course, everyone loves to hate Motorola and CEO Chris Galvin, with industry watchers bristling at Motorola's continuing quarterly stream of hefty, non-recurring charges. Don't expect those charges to end, given that Motorola's one of the biggest turnaround challenges going, in a broader market of troubled companies. But the company has finally cried "uncle" and is taking dramatic steps to realign its businesses. If you believe in its technology, invest. If you don't, then don't. Unlike with some of Motorola's competitors, at least you're not likely to be surprised.

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