More changes ahead for Motorola

The resignation of Motorola Inc. CEO Ed Zander is the first in an approaching wave of badly needed changes at the struggling cell phone maker that could lead to a breakup of the company, analysts predicted Friday.

They said Zander's successor, chief operating officer Greg Brown will take over at a company that needs to do something dramatic to reverse a persistent decline in cell phone market share and has the background to pursue a sale of noncore businesses.

While some investors may have preferred to see Motorola bring in an outsider, analysts said Brown is well versed in M&A, having been active last year in the company's $3.9 billion acquisition of Symbol Technologies Inc. and $1 billion sale of Motorola's automotive electronics division to German auto supplier Continental AG.

"We believe the possibility of a break-up [of Motorola] could be one that comes to light over the next six months," CIBC World Markets analyst Ittai Kidron wrote in a research report.

Kidron estimated the breakup value of Motorola at between $20 and $23 per share. Motorola was up 2% Friday to $15.97 following news of Zander's departure.

Zander had joined Motorola in January of 2004 under a five-year contract, but terms of that contract had required a one-year renewal next month.

Those terms essentially provided an easy exit for Zander, who had been widely celebrated early in his tenure for the introduction of the then-innovative Razr cell phone design. More recently, though, Motorola has struggled to introduce more winning designs and outline a clear direction for a diverse company with businesses ranging from cell phones to wireless and broadband communications gear.

Earlier this year, activist investor Carl Icahn acquired a stake in the company and launched a proxy battle to appoint new board members. Although Icahn ultimately lost that battle, his highly publicized campaign brought Zander under further scrutiny and heightened pressures on him to articulate an effective turnaround strategy.

In a statement Friday afternoon, Icahn greeted Zander's replacement as positive news, but added: "The steps announced today do not even begin to address the major problems at Motorola."

He argued that the company should restructure completely to achieve its full potential, suggesting splitting it into four companies that focus on mobile devices, enterprise mobility, the digital home and mobile network infrastructure.

Although Motorola has been active both in buying new businesses and in developing new phones, it has been slow to demonstrate progress. Handset market data Gartner Inc. released last week showed that the company's cell phone market share had tumbled to just 13% in the third quarter of 2007, from 23% at the end of 2006.

In a research report, Jefferies & Co. analyst Bill Choi described Brown as an "aggressive executive who can improve Motorola's overall execution," while Cowen and Co. LLC's Matthew Hoffman said that the change at the top of the company "will be viewed as opening the door to change."

In his research note, Hoffman noted an increasing rate of departures of long-term employees at all levels in recent weeks.

"We have to assume it is unclear whether the company will continue in all the businesses in which it is currently engaged," he said.