On the up

As Motorola moves ever closer to the separation of its mobile device division from its enterprise and networks division in Q12011, co-CEO in charge of Motorola Solutions, Greg Brown, believes the transaction cannot come soon enough. Brown’s eagerness can be understood by looking over Motorola’s Q110 financial results, which highlight how the company’s infrastructure and networking business continues to operate with the momentum necessary to compete successfully in a notoriously competitive space

Greg Brown says upon separation of Motorola Devices from Motorola Solutions, each business will be able to focus more effectively

Having appeared seemingly on the brink just a couple of years ago, Motorola is certainly in the process of reaffirming its right to be considered one of the stalwarts of the global telecom infrastructure industry. ‘Momentum’ is a word often used in corporate speak to describe progress that is being achieved without having yet necessarily produced the desired results. However, in the case of Motorola, the company’s momentum really does justify the dictionary definition of the word, as the Chicago-based vendor’s impetus and rebound continues quarter-over-quarter.

“We are enjoying great momentum,” commented Greg Brown, co-chief executive of Motorola and head of Motorola Solutions, as he spoke exclusively to Comm. “We had a solid Q409, have returned to profitability, and returned to cash,” he said.

The communications vendor’s first quarter performance in 2010 to end-March built further upon the perception that Motorola has turned the corner and that its drive towards separation would be characterised by some of the strongest operational results for several quarters.

As a result of the pending split, Motorola broke out its Q110 results for the enterprise mobility and networks units separately. The enterprise mobility unit posted a profit of US$141 million, while the networks business reported a profit of $112 million, nearly double its year-ago results.

Brown is confident that significant gains still remain to be made for Motorola in legacy wireless networks, while the 3G and 4G opportunities offer additional scope for longer-term growth. A deal that aptly reflects the sweet spot that Motorola is increasingly looking to find itself in with respect to its infrastructure business is a deal it penned with Zain Saudi Arabia in the middle of February for the deployment of the first Long Term Evolution (LTE) network in the Saudi Arabia.

Motorola has been contracted to deploy the LTE network for Zain in Riyadh and will provide an end-to-end LTE solution including radio access network (RAN), evolved packet core (EPC), devices and optimisation and integration services. Deployment began in the second quarter, and it is this kind of deal, which combines emerging market success with LTE investment that Motorola would like to maximise going forward.

Other LTE wins for Motorola include with KDDI in Japan and with China Mobile for TD-LTE; deals which allow Motorola to lay an early claim to a market opportunity that is only forecast to grow as capacity constraints on legacy infrastructure leads service providers to upgrade their networks with increasing regularity.

“Our business is stronger and it is our intention to gain a greater percentage of the business in the market,” Brown said.

The growing sophistication of smartphones means that operators have an incentive to invest in greater capacity, and companies such as Apple, Google, Research In Motion, Nokia, as well as Motorola, have been instrumental in driving the penetration of smartphones amongst mobile devices ever higher.

Motorola shipped 2.3 million smartphones in Q12010; representing 27 per cent of all 8.5 million handsets it shipped during the quarter. The vendor introduced six new Android-powered smartphones over the period, and reported that overall sales were down nine per cent year-on-year to US$1.6 billion. However, Motorola Devices managed to reduce its operating loss to US$192 million, a marked improvement from the US$545 million loss reported in Q109.

The relevance of the smartphone portfolio is a development that Brown forecasts will help the vendor see its handset division capably stand on its own in the future. And from Brown’s perspective, the split of the two businesses will only serve to boost the resources he has available to build stronger networks and enterprise businesses.

Zain Saudi Arabia is rolling out the kingdom’s first LTE network, with Motorola being the vendor of choice in the deployment of the network in Riyadh

Following the separation, the businesses remaining under Brown’s control are likely to be able to unlock more value operating as independent entities than bundled with the higher profile, but less profitable handset unit, run by co-CEO Sanjay Jha. As an example, had the various Motorola units been separated already, Brown believes he could have used the cash generated by his side of the business to invest in its further development, make acquisitions or buy back stock. Instead, the cash was diverted into research and development for the mobile division.

Thus Brown believes that separation allows for independence and the ability for each individual entity to focus much more closely on its own business cycle and operations.

Motorola has a strong public safety portfolio of products, which is well known in North America, but not so well-publicised in international markets. Saudi Arabia, Libya and Oman are amongst the markets in the Middle East in which Motorola is enjoying a flow of steady business.

“We have nothing in the order of magnitude of business as we did in the boom years of the past,” Brown acknowledged. “However, I think the year ahead will see stable growth with China remaining strong and there being residual challenges in Western Europe.”

The failure and disappearance of telecom infrastructure suppliers such as Nortel in the recent past has made the vendor space a somewhat daunting space; a situation exacerbated further by the weak infrastructure market for much of 2009 as a result of the global economic downturn. Just a couple of years ago Motorola itself was being touted as a potential takeover target given it dire financial situation at the time, and Brown is heartened by the role reversal.

Motorola is in a much stronger position today, with little evidence that it could fall victim to any vendor market consolidation, which appears inevitable at some point in the future. Brown does agree that the growth in competition in the vendor space is likely to result in changes in the composition of the market over time, though he refused to speculate on the role that Motorola might play in any such developments as and when they occur.

“Consolidation in the vendor space is a tough road,” Brown said. “It is a hard thing to do, and for our part, we are in a strong position and will continue to focus on our business.”

Looking ahead, Brown says his focus for the rest of 2010 will be on preparing the business for separation, while all the while emphasising innovation across platforms. If this year’s Mobile World Congress is anything to go by, then Motorola really is back to being regarded as a technology capable of creating a buzz through the delivery of a compelling product portfolio.

The Mobile World Congress in Barcelona in February was a successful event for Motorola as it bounced back to generating real excitement about its product portfolio

Brown describes Motorola as a top two player in LTE, number one in WiMAX, and third-player in CDMA, so is generally satisfied with the company’s traction in 2G, 3G and 4G.

“We should strive to be number or two in the technologies we offer, and this is our approach to the businesses we are in,” Brown concluded.