Don't hang up on Motorola yet

By Robert Walberg

In the end, the lust for market share has been Motorola's undoing.

Pushing Motorola (MOT, news, msgs) into the No. 2 spot in the hotly contested global cell-phone business was the one claim to fame for CEO Ed Zander. But Monday's news that industry leader Nokia (NOK, news, msgs) expects to increase its 36% share of the market by the quarter's end shows how dearly product disarray and pricing decisions have cost Motorola.

In fact, the decision to quickly commoditize the red-hot Razr handset to grab market share is likely to cost Zander his job by the year's end. Not long ago, the Razr's cool looks and thin design won it legions of users -- despite a lofty price of $400-plus.

But the company didn't want the sticker price to stand in the way of share gains, so it slashed prices just as other brands copied the Razr's styling. The phone soon lost its "cool," and Motorola lost its way as margins and profits collapsed.

In stepped billionaire investor Carl Icahn to try for a board seat to shake things up. Though Icahn's bid failed last week, his efforts exposed Motorola's lack of vision and recovery plan. Zander needs to do more than string together a bunch of buzzwords and platitudes about creating unique products, winning share and eventually owning mobile media.

Management's task

Motorola's management team needs to take a page from its nemesis, Apple (AAPL, news, msgs) CEO Steve Jobs, and deliver market-altering products that resonate with consumers. And it needs to do so on a regular basis. Unfortunately, there's little to suggest that Zander's team is up to that task, at least not within the short time frame shareholders are likely to give it.

The company's first test will come this week, when Motorola unveils a handful of new products. The buzz on Wall Street is that the products lack sizzle. Reportedly, the most interesting is a phone that plays full-motion video -- a "media monster," according to Zander. The product will be targeted toward European audiences, however, so its appeal will be limited. More importantly, there's nothing that can turn around operations by the end of the year.

• Video: Motorola CEO's opaque mission

Motorola shareholders must accept that by slashing the Razr's price and failing to create any new "must-have" products, Zander & Co. have doomed the company to declining sales and margins. Hard-fought share gains will also slip away, as evidenced by Nokia's growth.

Though he may not have been the right messenger, Icahn had the right message: Motorola needs to be fixed from the top down, not the other way around. The sooner the board understands that, the better for the company and its shareholders.

There's still a lot to like about Motorola overall. Its balance sheet is solid, it holds the No. 2 position in the growing cell-phone market, and its home unit offers promise. The stock is also relatively cheap, especially when you back out cash on hand. The only thing holding the company back is the management team. For Motorola to right itself, it needs a person who totally understands the cell-phone industry and where it's going, and that man isn't Zander.

Considering Zander's tenuous position, the stock is an attractive turnaround candidate for aggressive growth investors because any change at the top is likely to result in a nice rally. Downside risk is to the $17-per-share area, with long-term upside of $24 to $25. The stock closed Monday at $18.16.

At the time of publication, Robert Walberg did not own or control shares of any company mentioned in this article. His clients own shares of Motorola.