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Motorola's Zander out after Razr deemed one-hit wonder

Two years ago, Ed Zander was flying high on the success of the Razr. Now he's stepping down as CEO after failing to come up with an encore.

Few Motorola followers were shocked by the company's announcement Friday that CEO Ed Zander would be stepping down--they were just surprised it didn't happen sooner.

"If you look at the company's performance the last year and beyond, it's no surprise at all," said Ellen Daley, a Forrester Research analyst. "And when the numbers came out that Samsung surpassed Motorola as the No. 2 device maker, it didn't bode well for Ed."

After just shy of three years at the wheel, Zander plans to resign his CEO position at the end of the year. He will be succeeded by Greg Brown, the current president and chief operating officer of the company.

Zander's downfall can be summed up in seven words: lack of innovation and slow to market, analysts and industry watchers say.

"I've followed Motorola for the past 15 years, and they've had the same underlying problems with efficiency and speed," said Paul Sagawa, an analyst with Sanford Bernstein.

Ed Zander
Credit: Motorola
Ed Zander

Motorola has struggled to find an innovative replacement for its popular ultra-thin Razr. The Razr still sells fairly well for a 3-year-old phone, but rivals like Samsung and LG Electronics have rolled out their own slim, thin phones while Motorola has failed to come up with anything that has resonated with the public to the same degree.

That problem was compounded by Motorola's slow entry into the 3G, or third-generation, market, as Samsung and LG introduced several 3G phones early in the year for use over next-generation wireless networks. Motorola only recently came out with a 3G version for the Razr, and while that device, the Razr 2, was fairly well-received by reviewers, it was buried by the buzz surrounding Apple's iPhone.

Combine all that with stiff pricing competition and the company's earnings and stock price taking hits. At Friday's closing price of $15.97, Motorola's stock is slightly up compared with where it was when Zander took over, but it's down significantly from the $26 it reached in 2006 during the height of the Razr boom. And earlier this month, Motorola announced earnings that produced a profit for the first time in awhile, but sales of mobile devices were down 36 percent compared with the previous year, and the division lost money.

Last March, a dramatic change at Motorola began to emerge when outside board member Tom Meredith was named interim chief financial officer at Motorola, Sagawa said.

Meredith previously served as chief financial officer and was more recently Dell's senior vice president of business development before he left in 2001 to form his own venture capital firm, Meritage Capital.

"When he became (interim) CFO at Motorola, it marked a dramatic change at the company," Sagawa said. "At analyst meetings and on conference calls, Ed would look to Tom to add color on questions and Tom would be the one to answer questions directly. For the past eight or nine months, it's seemed that the CFO was in the driver seat."

"For the past eight or nine months, it's seemed that the CFO was in the driver seat."
--Paul Sagawa, analyst, Sanford Bernstein

Motorola also named Brown president and chief operating officer in March, and just a few months later named Brown to its board of directors, which struck some analysts as an unusual move given its speed and timing.

"Ed was seeming to play less and less of a direct role in the day-to-day decision-making of Motorola," Sagawa said. "So, in that sense, we have been slowly moving into a situation where Ed has been pulling out of the CEO role for a while. It was just a question of when it would happen."

In July, Business Week reported that Motorola's board was thinking about giving Zander the boot and replacing him with Brown, but Meredith denied that report in an interview with CNET A week later, Brown was appointed to the board of directors.

Motorola is comprised of three business segments: enterprise mobility, with products like two-way radios and RFID readers; home and networks mobility, which makes set-top boxes and modems (chances are you've got a Motorola box in your living room); and the mobile devices business, the boom-and-bust division that produced both the Razr and the Rokr.

Brown, who initially joined Motorola in 2003, has worked in the non-device areas of the company, such as its networks and enterprise business, now known as enterprise mobility. Before Motorola, Brown was the CEO of Micromuse, a network-troubleshooting software company that was acquired by IBM in 2005.

"People have asked me if Greg is another Ed Zander. He's not," Forrester's Daley said. "Greg is a very determined and careful speaker and analyzer. Ed is one who tends to talk off the top (of his head)."

Zander made headlines at an otherwise innocuous talk on leadership skills in September 2005 when he lashed out at Apple, Motorola's former partner on the Rokr music phone. The long-awaited introduction of the Rokr earlier that month was overshadowed by Apple CEO Steve Jobs' decision to unveil the iPod Nano at the same event, and Zander grew tired of persistent questions about the iPod Nano from the moderator of the discussion.

"Screw the Nano. What the hell does the Nano do? Who listens to 1,000 songs?" he said. Zander's point was that people want devices that do more than just play music--a vision that has played out with the early success of the iPhone--but his anger at Apple came through loud and clear.

Brown, on the other hand, is seen as more pragmatic and more likely to take a hard look at Motorola's current operations, Daley said.

"Greg understands the business and what the costs are and how to drive costs out," she said. "He also knows that devices and wireless LAN networks are commodity businesses and has said they need to look at how the industry is changing. He seems to know what a commodity is and what to give Motorola, which is a distribution channel to the enterprise."

She added that Brown is also familiar with Motorola's device business and suspects he'll find a way to play all three areas off of each other.

Brown was given credit for orchestrating the company's $3.9 billion acquisition of Symbol Technologies, the second-largest transaction in the company's history. Symbol makes ruggedized handheld devices for businesses as well as networking devices.

Motorola also acquired Good Technology on his watch, which makes software that lets corporations equip their workers with secure corporate e-mail, in November of last year. Good competes directly with Research In Motion's BlackBerry software and devices, but Motorola has thus far been unable to come up with a combination of Good's software and a Motorola device that change the perception of the BlackBerry as the industry standard for enterprise mobile computing.

While Brown's expertise in the other areas of Motorola's business should help him out, he'll probably be judged on whether he can return Motorola's handset business back to the black.

"The greatest challenges are in mobile devices, returning it to profitability and extending its product portfolio," Brown told in an interview Friday. But he'll have to find another hit like the Razr to vault Motorola back into a brand that's on the lips of fickle consumers.