Activist: Motorola Changes Not Enough

Motorola's (MOT Quote) fall from its perch atop the mobile-phone world has taken less than a year.

A year ago, the company successfully convinced its shareholders that they shouldn't elect Carl Icahn to the board, after the activist shareholder ran an unsuccessful proxy contest to shake things up at the company. Motorola management claimed that he was out of touch with the long-term interests of the company, as he had called on Motorola in early 2007 to initiate a massive stock-buyback plan and take on significant debt.

Management promised a turnaround was right around the corner for the 80-year-old company, with exciting new handsets beyond the Razr, and shareholders chose to believe them.

Today, Motorola's former CEO, Ed Zander, is on his way out after a string of missed quarters following last year's annual meeting. The company still has no stand-alone head of its mobile devices business (the current CEO, Greg Brown, is acting head). And the much-promised new handsets have been flops. Motorola now says the next batch of exciting new devices won't appear until well into 2009.

Instead of facing a proxy battle with Icahn again this year, Motorola recently folded its cards and agreed to appoint two of the investor's representatives to the board. The company also caved to Icahn's demand that the company split itself up in order to better recognize the value of the underlying businesses.

You might think these moves are enough to bring back the magic at Moto. They're not.

For the last 20 years, Motorola has perennially underperformed its potential. Back in the 1980s, Motorola was an American icon, a name arguably as big as General Electric's (GE Quote). Today, a comparison between the two is laughable. From 1992 through today, GE stock gains have outperformed Motorola roughly 450% vs. 50% (vs. 250% for the S&P 500).

History Repeating

What's also maddeningly frustrating for me as a shareholder is that Motorola already lived this current nightmare of its revenue dropping off a cliff 10 years ago. The company had a hot phone that grew so popular it took attention from developing other devices until -- after a great run -- the well ran dry and the company had to start from scratch. I'm not talking about the Razr -- but the StarTAC.