Motorola (MOT) fans relish a massive share buyback but are discouraged by the company's fading prospects.
If the company's yearlong stumble weren't bad enough already, signs of new missteps are making recovery odds look even longer. Apparently Motorola is having difficulties with one of its newest crop of phones, and that could spell critical delays.
Shares of the Schaumburg, Ill., wireless giant fell 6% after the company slashed more than a $1 billion off its first-quarter sales estimates Wednesday. Replacing its finance chief and pumping $3 billion more into stock repurchases helped buffer the full impact of the company's fourth consecutive quarterly disappointment.
Bulls emphasize that Motorola as a diverse technology company, with strong products in cable set-top boxes and networking gear including emergency communications systems. And, as the feeling goes, with CEO Ed Zander's latest executive shuffle the mobile phone business will eventually get whipped into shape with some organizational changes and cost cuts.
But some investors and industry observers are skeptical.
"Zander isn't a cell phone guy, he's a turnaround guy," says one buy-side analyst who is short the stock. "If you are Motorola, being a product design company is your core asset."
As the tremendous rise and fall of the Razr demonstrated, a breakthrough design can translate to huge sales. And though Razr's popularity has collapsed, Motorola had high hopes for the ultrathin Scpl phones that promise to spread the winning Razr-inspired design to new models and new markets.
But development of the Scpl platform has been delayed, and the timeframe for the introduction has been pushed out, say people familiar with the company.
A Motorola representative disputed the idea of possible Scpl-related delays, but said the company was working on a new multivendor approach to the line.
Early versions of the Scpl system, which features far fewer components and a thinner, more energy-efficient phone core, have been somewhat disappointing, say observers. For example, Motorola's low-cost, would-be blockbuster phone called the Motofone F3 was expected to be a big hit in rapidly expanding markets like India.
But the Motofone F3's display featured big block letters like those found on an alarm clock. Users of text messaging say the phone was fine for English readers, but useless for other languages. That's an odd mix, considering India is home to at least five languages.
The Motorola rep said the sales woes in India and other expanding markets like China stem from the company's refusal to match price cuts by competitors.
Observers say the new self-inflicted blunders aren't helpful when you are trying to get a new product cycle going.
"The Scpl wasn't going to be a big blockbuster like the sleek Razr or the StarTAC," says the buyside analyst, referring to the original folding phone, "but it was going to be a cool derivative of the Razr."
Investors and mobile phone industry analysts say Motorola's design woes and product development deficiencies will look even more glaring when
hotly anticipated iPhone hits the market in June.
When Zander first came to Motorola and set the goal of unseating
as the top phone maker, some took it as a bad sign.
"If you are in the business of trying to gain market share, it means you have admitted you are pushing a commodity," says the buy-side analyst, who is long Apple. "What you should be doing is developing the right products that get people to pay for them."