Kelleher (Argus) on The Sanjay Jha Appointment
Over the last year or so I've been gaining respect for Jim Kelleher, CFA, the Associate Director of Research at Argus who covers Communications Equipment, Communications Semiconductors, and Electronic Manufacturing Services companies for them. He currently rates MOT a HOLD (12 month) and a 5 Year BUY.
In an August 4, 2008 MOT update he made these comments about former Qualcomm COO Dr. Sanjay Jha becoming co-CEO of Motorola and CEO of the (to be) split-off Motorola Mobile Devices business, the departures the division has suffered this year, adn the migration of Motorola's product line to 3G WCDMA where Moto is currently exceptionally weak ...
>> ... snip> ... Investors last week accorded the MOT shares a rare upside surge following the release of generally positive second-quarter results; however, as we detail below, we think some of that strength was pulled from the third quarter. The shares are also reacting positively to news that Dr. Sanjay Jha, most recently COO of Qualcomm and the long-time leader of Qualcomm's semiconductor business, will become the new CEO of the split-off Motorola Mobile Devices business. Although we have been negative on the split of Motorola into two companies, the ability to land Dr. Jha is positive news indeed for this business, in our view.
After a very rough start to the year, the MOT shares are down 39% year-to-date, compared with market declines of 14% for the S&P 500 and 13% for the Nasdaq Composite. The stock also lags the 21% year-to-date decline for large and mid-cap communications equipment companies under Argus coverage.
In our view, the ability to land the very highly regarded Dr. Jha from Qualcomm trumps Motorola's encouraging second-quarter results and gives us more confidence that the split-off handset business can remain competitive. Still, we are not ready to predict that this business will thrive.
The appointment of Dr. Jha follows the departure of several top Motorola executives. Former CTO Richard Nottenberg left to become CEO of Sonus Networks in the spring. In mid-March, the head of Mobile Devices in EMEA (Europe, the Middle East and Africa), Mike Fenger, left the company; he was replaced by Stephen Nolan. Chief Marketing Officer Kenneth Keller resigned at the end of February, and Motorola indicated it would not seek to fill the post. Personal Mobility division head Stu Reed left the firm in March. The Motorola board must have decided that Reed did not fit the definition of a 'world-class CEO,' which the company announced it was seeking when it revealed the planned split-up. Dr. Jha may become a world-class CEO; the sole caveat to his appointment is that he has never been a CEO before. At Qualcomm, he led the QCT (Qualcomm CDMA Technology) unit. That business designed and produced the company's Mobile Station Modem (MSM) chips, along with other semiconductors. QCT is Qualcomm's largest-revenue business, though the smaller technology licensing business is a bigger income contributor, based on its 85%-plus net income margin. Though Qualcomm has examined separating semiconductors from technology licensing on an ongoing basis, we think that Qualcomm would do well to keep both assets.
Turning to second-quarter performance, Motorola showed the early benefits of its restructuring efforts; it also did a better job in a host of markets and businesses. In the Mobile Devices business, Motorola shipped 28.1 million units. While that was below our estimate of 28.6 million, it enabled Motorola to stabilize its global handset share in the 9.5% range. That should be good enough to hang onto third place, ahead of surging LG Electronics and struggling Sony-Ericsson.
In the first half of 2008, new WCDMA handsets represented 15% of all new units introduced; we estimate that they made up a much smaller share, perhaps 8%-10%, of all new units shipped. For 2009, Motorola projects that 50% of all new handsets will be WCDMA-based. Earlier this year, Motorola opened up its silicon sourcing to include both Texas Instruments and Qualcomm semiconductors in its 3G handsets, supplementing an existing relationship with Freescale. Industry pundits are sure to conclude that, with the appointment of Dr. Jha, Qualcomm will become the preferred vendor. We think Dr. Jha will be far removed from product-line decisions of this sort. We also regard as positive Motorola's willingness to open up its UIQ software within the open-source initiative expected to grow out of the now-forming Symbian foundation.
On the product front, Motorola shipped 10 new devices in 2Q08, representing about one-quarter of the 42 devices the company now has on the market. The market segmentation plan first announced last year is now maturing. Motorola has split its handset business into Everyday Communications (entry level); Feature, for calling, texting and photos; Multimedia-Music, featuring 2G and 3G phones with advanced photo and music capabilities; and Multi-task, featuring enterprise-level phones with e-mail and smart-phones for advanced mobile applications. W e think Motorola will compete best in the Feature and Multimedia-Music categories; six of its new phones in the quarter were in those two categories, including the new ROKR E8 and various later-generation RAZRs. That is good news, as RAZR is the phone from which the most users defected to buy the iPhone. For the third quarter, Motorola has released the Moto Zone ZN5, a camera phone developed with Kodak that enables consumers to easily shoot, edit and send their pictures. ... <snip>
The appointment of Dr. Jha confirms that the handset business will be split from Motorola, in our view; some doubts had begun to emerge in the market. We continue to expect the split-off to occur in the third quarter of 2009. Whether this is a good or bad remains to be seen, though the new business will at least have a highly capable chief. ... <snip rest> ###
Overall I think that Kelleher's capsule is reasonably astute. I found these two sentences to be particularly interesting and I agree with them ...
Industry pundits are sure to conclude that, with the appointment of Dr. Jha, Qualcomm will become the preferred vendor. We think Dr. Jha will be far removed from product-line decisions of this sort.
Mobile Devices has suffered a great deal of attrition and has probably lost some real talent along with some marginal players and some deadwood.
One potentially key remaining Moto player within Mobile Devices is Alain Mutricy who joined Moto as SVP, Platform Technology in May 2007 (see article below).
Essentially, he was hired to do what Moto's Ron Garriques promised to do and never did -- i.e platform their chipset platforms (particularly) and software platforms so product design and software engineering had a solid base from which to spin new product (not just RAZR derivatives) quickly and efficiently in the Nokia mode. It is not yet clear how successful (or unsuccessful) he has been in that endeavor. How successful he has been will have a bearing on how quickly Jha can right the ship.
I would assume that since Mutricy joined Moto, he and Jha have developed a working relationship since we'll see 3G product using Qualcomm merchant ASSP's being released shortly, and probably before custom TI ASICs with embedded Moto IP powering higher end (less mass volume) Moto handsets.
If Jha has confidence in Mutricy and what he's accomplished to date he's likely to rely on him to continue in the same direction while he focuses on numerous other personnel and operational and sales/marketing matters that need attention.
If he doesn't have confidence in Mutricy and the results of his platformization initiatives his tasks at hand are compounded.
>> Motorola Appoints Alain Mutricy as Senior Vice President for Platform Technology for Mobile Devices Business
Former Texas Instruments VP Will Drive Global Strategy for Silicon and Software
Motorola Press Release
Schaumburg, Ill.
May 3, 2007
tinyurl.com
Motorola, Inc. (NYSE: MOT) announced that Alain Mutricy has joined Motorola as Senior Vice President, Platform Technology, within the company’s Mobile Devices business. He will be responsible for defining and directing the business unit’s global strategy for silicon and software platforms and will be based at Motorola’s Libertyville, Illinois, facility. Mutricy will report directly to Terry Vega, head of products and technology as well as co-leader of the Mobile Devices business.
“Alain is globally recognized for his expertise in defining and delivering silicon-chipset platforms that drive both cost efficiencies and speed to market,” said Vega. “Additionally, he brings proven leadership in important and fast-emerging opportunities in wireless – particularly in voice- and multimedia-enhanced applications for 2.5G and 3G wireless devices. We are thrilled to welcome him to the Motorola team,” said Vega.
“Alain is a tremendous addition to Motorola,” said Greg Brown, president and chief operating officer. “We are excited about the depth and breadth of his chipset-platforms and product-management expertise. His proven capabilities will help drive future successes for our Mobile Devices business as we work to design and deliver the world’s most compelling mobile communications experiences.”
By joining Motorola, Mutricy concludes more than 18 years with Texas Instruments, where he was promoted to vice president in January 2002.
From 2004 until his departure from Texas Instruments, Mutricy served as vice president and general manager for the company’s Cellular Systems Solutions business. In that role, he was responsible for commercializing and building a leadership position for the company’s wireless chipset solutions for GSM/GPRS/EDGE/3G and OMAP™ application processors. Prior to leading Cellular Systems Solutions, Mutricy was general manager for the Texas Instruments OMAP™ business, which he led from start-up status to global leadership between 2000 and 2004. Additionally, from the time he joined Texas Instruments in 1989, Mutricy was promoted through a series of general-management positions, each with increasing scope and responsibility in areas including sales, marketing and general management.
Mutricy holds a master's degree in engineering from ENSAM and an MBA from HEC Group – both in Paris. ###
- Eric - |
