Motorola needs a miracle

Motorola has finally bitten the bullet, and decided to split the company in two, effectively getting rid of its floundering handset division.

The move, announced at the end of last week, seems to mark the end of one of the most bloody and bitter chapters in the corporate history of IT. Motorola's failure to repeat the success of its RAZR handset has led to a long-running proxy battle with shareholder Carl Icahn, the departure of a number of top-level executives, including CEO Ed Zander, and the sort of insider gossip about the way the company is run that comes straight out of some sinister Dilbert cartoon.

The main question with Motorola's handset division is just how it failed so badly to build business off the back of the RAZR. The company seems to have simply sat back and relied on being able to market the same handset for far too long. The best attempt at a successor, the ROKR, didn't manage to capture the same attention, and the division lost market share, lost market position and lost over a billion dollars. There is increased competition in the handset business, but Motorola had identified a proposition, the high-end, luxury handset, and could have held on, even though many consumers questioned the quality of its handsets. Management should have driven more and better products from the company, but given the decision to recruit a new CEO from outside of the company, it looks like the executive management of Motorola are either unable or unwilling to get to grips with the handset business, and want it to go away as soon as possible.

The networks division has a mixed bag of technology that might not all seem to fit together, but it's sitting on top of some good solutions for different areas, and so long as the management keep a tighter focus on each individual business area than they did with handsets.

So what are the prospects for an independent handset business? A sell-off to a Far East company that really understands the consumer electronics business would probably be the best bet for the Motorola brand to retain any significant share of mobile markets, and would have the benefit of a clean start compared to the task that would face a new CEO in dealing with the current baggage.

The answer, for now, most likely lies with Carl Icahn, the investor who holds 6% of Motorola, and who seems to be calling the shots, or at least stirring up his fellow investors to demand change. Icahn has rejected the idea of a sell off, and will doubtless want to realize the value of his investment rather than cut his losses and sell now.

The right chief executive might be able to turn the fortunes of the company around, and revitalize the brand. The high-end, luxury handset segment is still a fairly open market, and even with the entrance of several Far Eastern brands, Motorola would still have the advantage as a western company of the perceived inferior quality of Far East brands, particularly in the US (and see some of the comments on US tech sites regarding Acer's purchase of Gateway if you want examples of how strongly some Americans regard Far East brands as ‘inferior').

If Motorola's handset business is steered down this path by a new CEO rather than sold off, there is a long way to go to turning the situation around, and the company will need to sort out its software strategy and get some compelling handsets out the door very soon. Otherwise it's easy to see it continuing to lose money until even this stops being a viable proposition.