Motorola’s shareholders declined this month to put Carl Icahn on the board, which resolves the governance question and does nothing whatsoever about the actual problem.
The proxy fight was always slightly beside the point. Icahn’s argument was that the company is badly run, holds too much cash, and should return more of it to shareholders. The board’s argument was that a turnaround is under way and needs time. Both of those can be true and neither addresses why the handset business stopped making money, which is that Motorola sells beautiful objects and has nothing to sell after the customer stops caring how the object looks.
A board seat does not fix that. Neither does a buyback. What fixes it is either buying a software platform or building one, and the second takes years this company does not obviously have.
What makes the smartphone side particularly awkward is that Motorola is now competing against companies that all own their stack. RIM owns its operating system and its server infrastructure, which is why corporate buyers keep choosing it. Nokia owns Symbian. Apple, arriving next month, owns everything including the relationship with the carrier. Motorola licenses Windows Mobile, which means the Q is a very well made chassis around decisions Microsoft made, and every complaint a customer has about that device lands on a Motorola badge.
There is a version of this where the licensing model is fine. It works if the platform is good enough that hardware differentiation is the sensible place to compete, which is roughly how the PC industry has operated for twenty-five years. The reason it is not working in phones is that Windows Mobile is not good enough and cannot be fixed by anybody holding a licence to it.
The company still has real assets and it is worth saying so. The industrial design group is the best in the industry. The manufacturing scale is genuine. There is a networks business that has nothing to do with any of this and makes money. A smaller, more focused Motorola that stopped trying to hold twenty per cent of the handset market and concentrated on making the best mid-range phones anybody sells would be a perfectly good company.
Nobody who has recently held twenty per cent of a market wants to hear that, which is the actual reason turnarounds of this kind take so long. The strategic answer and the emotionally acceptable answer point in different directions, and boards under pressure from an activist tend to choose the second while announcing the first.
I have written four times in about a year that this company’s problem is software, and I am aware that repetition is not analysis. So let me put it as a prediction instead: Motorola does not recover its position with hardware, and the next genuinely important thing it does will be an acquisition. If two years pass without one, the decline is structural.