Motorola Inc. lately said that it will combine its two wireless equipment operations, the latest move by Chief Executive Edward Zander to streamline the company
In the name of seamless mobility advancement, Motorola plans to combine its Networks and Government & Enterprise Mobility Solutions entities into one unit, a move claimed to be in anticipation of the retirement of one of the company’s senior executives. The new organization will operate under the Networks & Enterprise moniker.
The network unit sells equipment that runs mobile phone networks; a segment that analysts say has become cutthroat because of too many suppliers. The other business sells wireless gear to government and large business clients.
Motorola chief executive Ed Zander says the combined unit will strengthen the company’s ability to deliver end-to-end network infrastructure solutions to customers – public, private and enterprise – worldwide.
Motorola did not give details about how the combination would help with costs, but said it plans to provide information on the reorganization and related expenses at a later date.
Analysts applauded the move, saying it should lower costs and promote more cooperation within Motorola. But several said that cost-cutting in such combinations usually leads to layoffs.
One analyst said the move appeared to make sense but that it was still unclear how much savings it would produce. "I believe it makes sense because it eliminates the duplicative research and development between the two divisions," said Oppenheimer analyst Lawrence Harris.
The technologies and the pursuits of the two divisions have been coming closer together because the government unit has been pursuing bids to sell network equipment to public safety agencies and state governments, he said, noting that they previously focused more on selling walkie-talkie radios.
Jeff Madsen, a Motorola spokesman, said the firm cannot yet gauge if jobs will be cut. "Do we expect improved operating efficiency? Absolutely, but it is too early to tell if it will impact our work force. . . . We view this as a long-term integration."
Greg Brown, who currently services as president of the Government and Enterprise Mobility Solutions business, will head the new unit.
Meanwhile, the 59-year-old Adrian Nemcek, will retire from Motorola later this year after five years of heading the former Networks business unit, which was responsible for radio access, wireless broadband, professional services and next-generation core network activities. According to Motorola, Nemcek will assist Brown in the transition to the new organization until the end of the second quarter, after which he will assist Zander with “special initiatives.”
The networks division had $6.3 billion in sales last year, and government and enterprise had $6.6 billion. The two combined made up 35 percent of Schaumburg-based Motorola’s 2005 revenue.
Together, they also employ about 46 percent of Motorola’s global work force of 69,000. In the Chicago area alone, the two divisions combined have about 8,000 workers, Madsen said.
The network-related businesses are not in the limelight like Motorola’s mobile phone operation, which made up 58 percent of the company’s sales last year. But Motorola’s emergency radio business has long been a critical profit center, and the phone equipment division has made an important comeback over the past few years.
With the combining of the two units, Motorola will now operate with three business segments: Mobile Devices, Connected Home Solutions and the newly created Networks & Enterprise unit, including the segment that makes equipment for the cable television industry.
The realignments have been driven by cost-cutting, and seen as a remedy for Motorola’s so-called "warring tribes" culture, which has pitted business units against each other.
The reorganization announced should further break down walls in the company, said John Bucher, a stock analyst at Harris Nesbitt in Los Angeles. "I view it positively."
The merger of the two units is the second major realignment at Motorola since Zander took over as CEO in January 2004.
Motorola’s Brown has indicated in the past that there should be more planning and coordination between the government and network groups, and Bucher said the market increasingly demands it.
Brown was the CEO of a San Francisco-based software company before he became head of Motorola’s government communications business in early 2003. He has received high marks from analysts for his stewardship of the business.
Nemcek, a 36-year Motorola veteran, helped resuscitate the networks division, which lost about $2 billion in 2001 and 2002 combined. Last year, it was Motorola’s second-most profitable division with $990 million in operating earnings.
They got the division profitable–that was the key–and Nemcek helped to do that, said Brian Modoff, a stock analyst at Deutsche Bank Securities in San Francisco.
Still, there has been a lot of speculation about the phone equipment division’s fate over the past year because of several big telecom mergers.
The wireless carrier combinations, such as the merger of Sprint and Nextel, have left equipment makers like Motorola with fewer but more powerful customers.
Motorola is not a market leader in equipment. It is in the middle of the pack with companies like Lucent and Nortel. There’s been speculation that Motorola might buy one of those companies, or put the networks unit up for sale.
Some analysts said that the reorganization should make a sale of networks more unlikely. Now, networks will be even more integrated into Motorola, said Roger Entner, a wireless analyst at market researcher Ovum.
In January, Motorola posted an 86-percent increase in fourth-quarter earnings but admitted it fell short of meeting demand for its handsets over the holiday selling season. Revenue dipped 18 percent in its networks division.
According to Zander, with a more streamlined structure, Motorola will move faster in addressing customer requirements and will improve the cost structure of the company, including general and administrative activities. That, of course, usually is corporate code for a reduction in force ‘a layoff, if you want to be blunt’ but Motorola did not disclose any further details.
Motorola also said financial reporting for the first quarter of 2006 will be done in the former business segment structure but, as a result of the restructuring, in the future it plans to break out results in three segments: Mobile Devices, Networks & Enterprise and Connected Home Solutions.
The government and enterprise unit has roughly 19,000 employees worldwide, while about 13,000 of Motorola’s 69,000 employees work in the networks business, according Madsen.