Motorola's train wreck of troubles continues

Motorola has issued another profit warning. Could this mean that CEO Ed Zander is on his way out?

Things seem to have gone from bad to worse for the No. 2 mobile handset maker Motorola and its CEO, Ed Zander.

On Wednesday the company issued a profit warning citing weak sales in its mobile handset business. The company said that it expects second quarter sales of $8.6 billion to $8.7 billion, down from the $9.4 billion it had predicted earlier. The company also said it would report a loss between 2 cents and 4 cents a share. Some analysts predicted the company would actually report a profit of about 2 cents. Motorola is expected to report full earnings on July 19.

The news will likely put more pressure on Zander to step down, as shareholders rear up in protest. Earlier this year Zander weathered sharp criticism from Carl Icahn, the billionaire "activist" investor, who had launched a proxy fight to get on Motorola's board. Icahn lost his battle, but criticism of Zander hasn't subsided.

Reuters reported Wednesday that another activist shareholder Eric Jackson is calling for Zander to step down. Jackson helped spearhead widespread shareholder dissatisfaction at Yahoo. At the company's annual shareholder meeting in June, he asked then CEO Terry Semel to apologize to shareholders. Semel was replaced a week later.

Jackson has said that since Zander took the helm in 2004, "shareholder returns have been 13.5 percent." This is compared to returns of 37.8 percent from Motorola's rival Nokia.

Indeed, Nokia, Motorola's biggest competitor, is kicking butt. And Nokia is doing so with a mix of low-end and high-end phones. Like Motorola, it's dealing with pricing pressures, and yet it is still making money. And Motorola is losing money.

So what's the problem? For one, I'd argue that Motorola depended too much on its hit product, the Razr, to boost sales in the past. Even though it still ships a ton of Razrs, prices have been slashed to the point where you can get it free with some service plans. But more important, Motorola hasn't come up with any other hits to replace the Razr. And to make matters worse, the company was slow to the 3G market. While Nokia and Samsung have had 3G handsets in the market for more than a year, Motorola is only introducing 3G products this summer.

The result has been poor sales for Motorola in Asia and Europe, two parts of the world where Nokia dominates. This latest profit warning will no doubt drive even more angry investors to call for Zander's resignation. And who could blame them? It's getting harder to defend him. As my colleague Larry Dignan at ZDNet said in his blog, it could be time to start the Zander countdown.

 

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