Icahn: Break Up Motorola

Zander's ouster does not satisfy the disgruntled investor, who owns 3 percent stake in world's number three cell phone maker.

In the end, billionaire investor Carl Icahn got what he wanted: Ed Zander's ouster as Motorola's CEO. Now, Ichan, who holds about 3 percent of Motorola, wants to break up the world's third largest cell phone maker.

After Motorola announced Nov. 30 that Greg Brown would replace Zander as CEO on Jan. 1, Icahn, who unsuccessfully sought a Motorola board seat in May in hopes of forcing Zander out, said in a statement that Zander's departure would not be enough to turn around the "major problems" facing Motorola.

"The best opportunity for the mobile devices' business to attract top flight management and to prosper and grow is to establish it as a stand alone business," Ichan said. "In my opinion, Motorola should be split into separate companies: a mobile devices company; an enterprise mobility company; a connected home company; and a company focused on mobile networks infrastructure."

Zander, a former Sun Microsystems executive, joined Motorola in 2004 and quickly made a splash with the introduction of the RAZR line of mobile phones. Since then, though, RAZR sales have slowed and Motorola fell from No. 2 to No. 3 among the dominant handset makers. Nokia and Samsung are now the top two handset manufacturers.


To read more about Ed Zander's ousting as Motorola's CEO, click here.

"Although I like Ed Zander personally, I never thought that he was the right man for the job," Icahn said.

Companies ignore Icahn's opinions at their own risk. The 71-year-old legendary corporate raider and private equity investor has publicly feuded for years with the management of companies he takes a stake in. Last month, Icahn forced middleware software maker BEA Systems to disclose financial information to him after threatening a proxy battle.

BEA announced Nov. 5 that it will share its confidential business information with Icahn, who owns 58 million shares of the company, in hopes of proving that Oracle's expired $17-per-share bid for BEA undervalues the company. Icahn filed suit in Delaware Chancery Court Oct. 26 to force a proxy battle for BEA's board of directors, and in turn a sale to Oracle.

Over the course of Icahn's career he has carried out public battles with Time Warner, where he owns more than 3 percent of the company, and dozens of other companies.

In his battle with Time Warner, Icahn unsuccessfully sought to reorganize the media giant into four separate companies: AOL, cable, networks and film, and publishing.


Since Motorola's mobile devices division represents about half of Motorola's sales, flattening RAZR sales and the lack of a successful follow up spelled doom for Zander. Analysts predict 2007 revenue will decline 14 percent, to $36.7 billion, down from $42.9 billion in 2006.

While the RAZR was an unquestioned market hit, sales began to slow at the end of last year.

"At that point the RAZR was shown not to be quite the timeless classic Motorola had hoped it might become and sales fell sharply," Martin Garner, an analyst at Ovum Research, said in an investment note. "Although the company had produced a number of cool designs alongside the RAZR, none was selling well enough to make up the difference."

To offset the sales losses, Motorola began a price war in 2007 with market leader Nokia.

"Motorola got into a bruising price competition with Nokia in emerging markets, which left them unprofitable and facing the next quarter with channels full of unsold inventory," Garner said. "There followed two quarters of carnage in which the company lost nearly 50 percent of its hand-set volumes, a speed of decline that shows just how brutal the handset market is."

The end for Zander began when Motorola posted another disappointing quarter Oct. 25, with third-quarter net income falling to $60 mil-lion, from $968 million a year earlier. Motorola posted sales of $8.81 billion, also down from 2007 third-quarter sales of $10.6 billion. For the first nine months of 2007, Motorola recorded a $149 million loss on sales, down 13 percent, at $30 billion.

"Following management changes and staff cuts the last set of results were a slight improvement, but still the consensus is that Motorola needs a stronger portfolio of handsets to recover," Garner said.


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