Icahn: Ring the Alarm at Motorola

Now Icahn has turned his attention to the deeply wounded Motorola. Three years ago, CEO Chris Galvin, grandson of the company's founder, stepped down from the helm, a decision that was attributed more to the board than to him. Galvin, the antithesis of a showman, had quietly made many changes and improvements, including development of the Razr phone.

The board replaced him with the colorful Ed Zander, who had served as president of Sun (SUNW Quote). Zander hadn't exactly done a stellar job at Sun, but no matter. He fast-talked the board into believing he could improve things at Motorola. Three years later, that fast talk looks more like double talk.

The Trouble With Motorola

In the beginning, I, too, believed that Zander was shaking Motorola awake, but after more careful examination, I realized that he rode the turnaround that was already demonstrably under way when he arrived. Zander took credit for things that were not his accomplishments.

More importantly, he has slashed spending on R&D, the lifeblood of a high-tech company with Motorola's reputation, but margins plunged anyway. While the absolute dollars are similar to what was being spent four years ago, the revenue base is twice what it was then, so the percentage of sales spent on R&D has plunged. The result is a sorry bag of new product introductions at the recent Consumer Electronics Show.

Motorola missed its third-quarter numbers, but assured investors that improvement was just around the bend. Then it really missed fourth-quarter results, even as Nokia (NOK Quote) and Ericsson (ERIC Quote) were reporting strong results. This waved a bright red flag for Icahn.

Like Kodak, this once-proud company has one of the world's great brand names, which isn't something that's valued on the balance sheet, but should be. Motorola is not beyond repair, but it soon will be if Zander isn't bounced from the CEO job. Under his tenure, Motorola has gone from a tech powerhouse to a tech wreck. Innovation has been squelched. Job cuts are ongoing. Morale has become a critical problem.