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1. Case Study,History, and Strategic Analysis of Motorola Inc
Uploaded by exonmor on Aug 6, 2005
Strategic Analysis of Motorola Inc
The company that I chose to complete my Strategic Analysis on is Motorola Inc.. Many of us are
familiar with Motorola products due to the advent of the cellular phones. Regardless of the
carrier of the service, be it Verizon, AT&T, Sprint, many of these companies use a cellular
device created by Motorola. However, the company does much more than just producing cell
phones. One area that Motorola is trying to focus its current strategic actions in the area of
Semiconductors.
History/Financial Portfolio Motorola Inc. started with the founding of the company by Paul
V.Galvin (figure 1). Paul and his brother Joseph E .Galvin purchased a battery eliminator
business from Stewart Storage Battery Company which made battery eliminators used in
operating radios using household current in 1928 and created 'Galvin Manufacturing Company'.
The company started with five employees and grew gradually. It expanded its business into
automobile industry, by introducing auto radios sold to independent auto distributors and
automotive dealers. With Galvin Manufacturing Company entering into the auto industry, Paul
V. Galvin coined the word Figure 1 'MOTOROLA' linking motion and radio.
Daniel E. Noble joined Galvin Manufacturing Company in 1940 as Director of Research. As a
pioneer in FM radio communications and semiconductor technology he originated the first hand-
held two-way radio for the Connecticut State Police. He brought his designs to Galvin
Manufacturing Company and developed a two-way radio system for the U.S. Army Signal
Corps. Because of this, Galvin Manufacturing Company played a significant role in World War
II with radio and communications equipment like the "walkie-talkie" (figure 2) and "handie-
talkie".
The first public stock offering occurred in 1947. The company's name was officially changed to
Motorola Inc. In 1948 Motorola entered into the television business and with more than 100,000
of these TV sets sold in one year, Motorola catapulted into fourth place in the television industry.
During the late 1940's Motorola began to supply auto radios to Ford and Chrysler plants for
installation in their automobiles.
Motorola introduced dispatcher radios by taking advantage of expanded allocation of radio
frequencies and with aggressive marketing and a reputation for reliable equipment earned a
leading role in the industry. Daniel E. Noble launched a Motorola Research and Development
facility in Phoenix, Arizona. He anticipated the enormous potential of the newly invented
transistor and helped Motorola became one of the world's largest manufacturers of
semiconductors.
By 1950 the net sales of Motorola was $177,104,669 and the number of employees had grown to
9,325. Unfortunately, in 1952, Motorola's first color television was short of success due to
technical problems, a high price tag, and the failure of broadcasters to offer an adequate amount

2. of color programming. The product was pulled from the market in 1956. Among some of the
innovations for which Motorola is famous are a new radio communications product, a small
radio receiver called a "pager" that delivered a radio message selectively to a particular
individual carrying the device and the "Motrac" with such low power consumption that radios in
automobiles were able to operate without running the car engine Motorola was the first company
to use epitaxial method to mass-produce semiconductors. It used low cost techniques in making
silicon rectifiers, used in automobile alternators. In place of auto generators, the Automotive
Products Division began producing alternators, inaugurating the company's role as a supplier of
"under the hood" electronics. Motorola, in a joint venture with National Video, developed the
first rectangular picture tube for color TVs and with Ford and RCAs designed and made 8-track
tape players for the auto industry. Domestic and foreign auto manufacturers soon became
customers for tape players and 8-track players became the Automotive Product Division's second
major product line.
As the cost of semiconductors continued to decline, their application in consumer electronic
products increased and created a new major market. Motorola responded with a full line of low
cost plastic encapsulated transistors. The design of these devices was eventually adopted by the
entire semiconductor industry. In 1967 the company expanded its international presence by
adding six plants around the world. Lunar roving vehicles used Motorola's FM radio receiver to
provide a voice link spanning the 240,000 miles between the Earth and the moon. It was 100
times more sensitive than any car radio. Motorola entered into the manufacture of components
for battery powered quartz and between 1971 and 1979, the company gained critical experience
in producing and supplying integrated circuits, quartz crystals, and miniature motors to
manufacturers like Timex, Benrus and Bulova.
The company introduced its first 6800 microprocessor (see figure 3), which used only 5 volts of
power for the communication and business machines sector in 1975. In 1979 Motorola
introduced its first 16-bit microprocessor, Figure 3 the 68000. Capable of completing two million
calculations per second, it used to run and write programs for scientific, data processing, and
business applications.
In the 1980's Motorola controlled the emerging U.S. market for cellular phones and pagers but
they were not aggressively focused on competing with the Japanese, even after Japanese firms
began to flood the U.S. market with low-priced, high-quality telephones and pagers. Motorola,
finding itself, pushed into the background heard the call to battle. Managers at first were not sure
how they should respond, so they originally decided to abandon some business areas and even
considered merging their own semiconductor operations with those of Toshiba's. After much
searching they decided to fight back and regain the firm's lost market position. This fight
involved two main strategies: Learn from the Japanese, and then compete with them.
This strategy seemed to work as Motorola's revenues tripled from approximately $10 billion in
1990 to almost $31 billion in 1999. However, more problems started to arise. The 1996-99
bottom-line performance did not match its rapid growth and profitability during the 1990-96
periods. One of the key issues facing Motorola was their weak financial position. Motorola had
inopportunely chased the dot-com and telecom boom in 2000 and built up a manufacturing

3. capacity and a global cost structure for a $45 billion revenue Martin Cooper demonstrates the
first company going into 2001, but had achieved only $37.6 portable cellular telephone. billion in
revenue in 2000. Then the reality of 2002 hit: *A telecom equipment downturn affecting both
wire-line and wireless.
*The worst semiconductor decline in history.
*Dot-com busts.
*A U.S. recession.
*Appalling terrorist acts.
*Delays in the deployment of next-generation (3G) wireless technology.
*Large customer default *Sales of only $30 billion.
*Major and painful corporation-wide resizing.
*Financial charges.
These are some of the reasons for the weak financial position mentioned in the 2002 annual
report. However, if you analyze these reasons it would seem that the company was trying to take
the blame away from Motorola's management and place it on external factors. Some reasons
alternate reasons might include: *Rapid technology gains and product innovations by Motorola's
rivals in wireless communications.
*Outdated management style.
*Lagging digital cellular phone technology.
*Motorola's focus on a wireless-equipment technology that only covered half of the U.S. market
potential.
*Poor quality and performance in some of its product areas (loss of customers).
In an attempt to regain its market position, Motorola began innovations with the development of
multi-media mobile devices using Mobile Extreme Convergence (MXC) architecture. With this
innovative architectural change many of the current design limitations of affordable, advanced,
full-featured mobile devices were eliminated.
"With the Extreme Convergence architecture, Motorola's Semiconductor Products Sector has
found a way to simplify the design of hardware and software and to reduce the cost of
components for mobile systems. Motorola's technical and business strategy combines DSP and
applications processor cores positioning the company to compete in a wide variety of

4. applications that goes beyond traditional mobile devices and into consumer electronics. The
rapid delivery of chips and platforms by Motorola for mobile and tethered applications will
enable it to secure a solid share in an addressable embedded processors market that is expected to
consume over 900 million chips by 2007." (Max Baron, principal analyst, InStat/MDR) Since the
company's creation, Motorola's two key core values set the standard for its employees' actions.
These core values are constant respect for people and uncompromising integrity. The company
also considered trust to be part of its competitive advantage. As Motorola developed into a global
company it continued to uphold its ethical principles. However, the company realized that its
values were contradictory to how business was being done abroad which resulted in Motorola
practically committing "business suicide" by adhering to its ethical policies in countries where
bribery and other business practices that are considered illegal in the U.S. were common and
expected. To combat the clash of ethics a group of retired Motorola officers were asked to look
into the status of ethics understanding and compliance around the world. They created the
Motorola Ethics Renewal Process (MERP). The chief purpose of MERP was to "help
Motorolians at all levels in all countries make ethically appropriate business decisions everyday
and to get them to take ownership and accountability for Motorola's key beliefs and ethical
values" (Kary, 2002). Local, country, and regional ethics committees allowed employees to
openly discuss issues surrounding Motorola's key beliefs and the code of business conduct.
Despite Motorola's unrelenting attempts to become an international, ethical company, it
continued to face the problem of staying profitable and growing market share.
II. Analysis of Current Situation Industry Environment The largest market share in the
communications industry is held by Nokia, with Motorola trailing in second place. In general,
economic conditions in most global industries have hit a point of stagnant or declining sales. In
today's world businesses need to somewhat accurately forecast the outlook for global economies
and then make investments and decisions accordingly. The communications industry is
dependent on vendor financing and has taken a big hit because "[ve]ndor financing is an
important part of the purchase decision for buyers. Vendor financing helps equipment makers
capture large contracts even when capital is scarce while allocating carriers to build out their
networks more quickly and cheaply" (www.activemedia-guide.com/telecos_equipment.htm).
Due to main reliance on vendors the communications industry has substantial risks so f Nokia
and Motorola do not stay ahead of the cable companies in technology their position in the market
will be highly threatened. "The biggest threat to telecommunication hardware vendors may be
the growing clout that cable companies have with high speed Internet access using cable
modems" (www.activemediaguide.com/telecos_equipment.htm).
Communication hardware companies are benefiting from "worldwide deregulation in
telecommunication services and intense competition among industry players"
(www.activemedia-guide.com/telecos_equipment.htm). Deregulation of the industry gives
companies more freedom in their decision-making processes. In addition there is intense pressure
and demand for emerging technologies. Communications hardware companies need to ensure
that their products are compatible with the newest features. Many are trying their best to
differentiate their product from their competitors with features including voice mail, two way
text messaging, e-mail capability, digital photography and Internet access. The competitive

5. advantages in this industry come from making versions of these features superior to those of the
competition. With that in mind the industry is experiencing a transition from copper wire to fiber
optic transmission. Due to the high costs of installing fiber optic cables it will take years for the
global markets to become saturated. This change in the industry includes benefits such as "voice,
data, video, and text over the same line"...and "fiber optic cable does not suffer from signal
distortion and degeneration" which "copper wire suffers from" (Johnston, 2002).
Operating Environment Motorola is a main supplier of wireless infrastructure products, the
support equipment that makes pagers, two-way radio systems, and cellular phones operate. The
main source of revenue is typically from major telephone companies that place large orders to
update or expand their network infrastructure. These customers seek innovative technologies that
require significant investment in R&D. Economies of scale provide the bigger equipment
manufacturers with a competitive edge in pricing when filling such large orders. Motorola also
receives a significant amount of business from individual or personal subscribers.
Motorola's main competitors in the wireless infrastructure sector are Nokia and Erickson, along
with Lucent and Nortel. The competitive environment for communications equipment requires
that vendors offer attractive financing terms to their customers as an important part of their sales
packages. Motorola leads the cable modem market with a 41% share, followed by Toshiba Corp.
at 18%, and Thomson Multimedia at 13%. With intense pricing competition pricing pressure was
as strong as ever in 2002 in such markets as wireless handsets. New competitors in the field such
as Samsung and Siemens have helped to speed up the pace of innovation by pressuring
established companies to protect their market share.
Rapid technology gains and product innovations by Motorola's rivals in wireless
communications, combined with a downturn in demand for semiconductors and pagers, and an
economic slowdown in parts of Asia have contributed to hurt the revenue and profitability of
Motorola as well as a lack of a competitive digital product in the Asian market. For example,
digital phones in Asia did not work on GSM (global standard for mobile communications).
Motorola has lost a number of contracts and customers due to poor switching capabilities of its
digital equipment. Motorola has made poor management decisions and has focused on the wrong
products in these markets.
In order to improve market share and revenue earnings, Motorola re-organized into three major
enterprises to reduce interdivisional competition, encourage sharing of ideas, reduce
development costs, and coordinate actions between Motorola's business units. A major problem
Motorola faced though was a decentralized approach to running its different businesses and
divisions. Motorola had approximately 90,000 employees that speak more than 50 different
languages and belong to as many or more cultures. These employees must be educated on other
cultures' beliefs, customs, and ways of life. Unfortunately, Motorola, along with many other
companies in the industry, forced to make workforce reductions to remain competitive, laid-off
32,000 employees in 2001, equaling approximately 22% of their entire workforce.
Most of the major communications infrastructure manufacturers maintain significant operations
overseas. Motorola, along with other companies, are subject to foreign economies and currency

6. risks. Firms based in the United States with overseas sales translate from local currencies into
dollars so a strong US dollar hurts reported earnings and a weaker US dollar helps. Motorola
must also keep a careful watch on other specific risks such as the affects of protectionism,
fluctuations in economic growth, and political instability when investing in foreign countries.
The Foreign Corrupt Practices Act is another concrete law that must be followed by Motorola to
its fullest extent and the knowledge that what is considered unacceptable business practices in
the United States is considered acceptable elsewhere.
Internal Environment Organizational Aspects One key issue that surfaces when one analyzes
Motorola's organization is its decentralized approach to running its different business and
divisions. Divisions are generally headed by strong managers and operated as virtual fiefdoms,
pursuing their own agendas and priorities. Divisions are often not cooperative or responsive to
the requests and needs of sister divisions, and are look on by outsiders as "warring tribes"
(James, 2003). Another characteristic of Motorola's leadership culture is its engineering base.
Most of Motorola's key executives are well versed in technology, and over time, the company
has developed a high level of technological and engineering expertise. For many decades, this
has looked as an advantage because this is the reason that Motorola has been able to stay on the
cutting edge of technological advances. However, at the beginning of 1990's, some observers
viewed Motorola's technology and engineering-based culture as a liability in a world that they
saw as increasingly driven by marketing. In addition, some people have viewed the company's
top executives as insular and tradition bound. In 1998, 67% of Motorola's top executives had
been with the company for more than 20 years. This, to numerous critics, was a sign that
Motorola was out of touch at the top.
Marketing Aspects Motorola markets its products in six different segments: The Personal
Communications segment (32% of 2002 sales), The Global Telecom Solutions Unit (20%), The
Commercial, Government and Industrial Solutions (13%), The Broadband Communications
segment (9%), The Integrated Electronics System Sector segment (7%) and The Semiconductor
Products segment (15%). They concentrate the majority of their marketing in wireless
communications products. The company manufactures cellular products based on all three of the
major digital standards: GSM, TDMA and CDMA. Motorola estimated that 425 million handsets
were sold in 2002, up 13% from the estimated 375 million units sold in 2001.
Motorola's current marketing slogan is "Intelligence Everywhere" (Motorola, 2003). They want
to be able to offer communication solutions everywhere a potential customer can be found. The
Company's Intelligence Everywhere solutions include software-enhanced wireless telephone and
messaging, two-way radio products and systems, as well as networking and Internet-access
products for consumers, network operators and commercial, government and industrial
customers, end-to-end systems for the delivery of interactive digital video, voice and high-speed
data solutions for broadband operators, embedded semiconductor solutions for customers in
wireless communications, networking and transportation markets, and integrated electronic
systems for automotive, telematics, industrial, telecommunications, computing and portable
energy systems markets.
Personal Communications Segment The Personal Communications segment (PCS) designs,

7. manufactures, sells and services wireless subscriber equipment. Its wireless subscriber products
include wireless handsets and personal two-way radios with related software and accessory
products. The company markets its products worldwide to carriers and consumers through direct
sales, distributors, dealers, retailers and, in certain markets, through licensees.
MXC Architecture Change The MXC architecture totally redesigns the mobile architecture to
combine functions and offer high-performance. Mass-market mobile devices can be developed
affordably on a platform the size of a postage stamp currently one-sixth the size of any other
chip. The MXC architecture simplifies and reduces development times, drives new applications,
increases carrier margins and speeds adoption of mobile devices by rethinking the architecture to
remove current design roadblocks and reduce cost, complexity, size, power consumption and
part count. It will open new markets for the next generation of "smart" mobile devices and
consumer electronics.
SWOT Analysis STRENGTHSWEAKNESSESOPPORTUNITIESTHREATS Brand
recognitionNo clear strategic directionFiber optic cablesShift in buyer needs to alternatives
Superior hardwareInternal operating problemsForm strategic alliancesLoss of sales due to
substitute products and services Attractive customer baseWeak income statementsConcentrate on
R&DSlowdowns in market growth Important patents, copyrights, usage rightsLow
profitabilityIncrease market shareAdverse shifts in foreign currency and economies Ethical
Business Practices Strong ethical biasesMany marker participants Loss of customers Intellectual
capital Growing bargaining power of customers Wide geographic coverage/ International
coverage Management styleSophisticated use of e-business technology Lagging digital cell
phone technology InnovationLow employee education, training, motivation, and moraleLearn
from the JapaneseCompetition in the Vietnam Market from L G Information Communications
Marketing developmentQuality of its productsTake part in joint ventures, new alliancesJapan has
been allowed to enter U.S. markets with few barriers Software developmentA reputation of
lacking a strategyIncrease reputationHard to penetrate Japanese markets Their passion, openness
of executives, acquisitions, mergers, and business alliances are also part of Motorola s
StrengthsOverall quality of its operations Untapped market opportunities around the
worldJapanese Competitors have flooded the market with low- prices high quality products
Table 1 III. Core Competencies Motorola, Inc. has two core competencies, integrated
communications and embedded electronics. "Their core products include wireless, broadband
and automotive communications technologies and embedded electronic products"
(www.motorola.com/content/0,,1,00.html).
Wireless Motorola offers three wireless platforms, 2G, 2.5G and 3G total systems solutions. The
systems "[f]eaturing fully integrated hardware, software, and support services, this platform
enables the rapid development and deployment of cost-effective GSM handsets. The platform is
flexible and scalable: it can support the high-volume production of economical phones as well as
the use of higher-tier feature sets, and it provides a seamless migration path to the i.250-20/i.250-
21 platforms and next-generation technology" (taxonomy.jsp). These platforms use i.MX &
Dragonball Applications processors used in wireless devises including smart phones and wireless
PDA's.

8. Broadband "Motorola's Broadband Communications Sector has a vision for the future. This
vision is strategically focused upon the potential of broadband solutions for the delivery of voice,
video and data over HFC networks" (broadband.motorola.com/noflash/bcsoverview.html). They
have the ability to deliver digital video, high-speed internet access, and end-to-end solutions for
wireless, cable and satellite networks.
Automotive Motorola's automotive products consist of Telematics, Automotive and Global
Positioning units. "Motorola combines automotive-grade wireless communications, GPS
technology and embedded computing to deliver the smart solutions, up-to-the minute
information and peace of mind that drivers demand. With more than 1.5 million telematics
systems shipped worldwide to date, Motorola is leading the charge to take you further into the
future, faster than ever before" (www.motorola.com/automotive/prod_telematics.html).
Embedded Electronic Products "As the world's #1 producer of embedded processors, Motorola's
Semiconductor Products Sector creates DigitalDNA® system-on-chip solutions for a
connected world" (www.motorola.com/automotive/prod_telematics.html). Embedded electronics
can be found in Motorola's automotive, network and wireless products.
IV. Technology Innovation Motorola's strategy is "...to become a global leader in wireless,
broadband and automotive communications technologies and embedded electronic products."
They have been able to accomplish this goal by maintaining a continuous focus on research and
development and dividing this product sector into smaller business units. Motorola's
semiconductor product sector is divided into five business units: technology &
manufacturing, wireless & broadband networking, transportation & standard products,
global sales & support and "Metrowerks" (see figure 5).
Figure 5 The Technology & Manufacturing (T&M) organization is focused on the
entire lifecycle of the product from research and development to the product reaching the
customer. "Leadership technologies provided include silicon germanium carbon (SiGe:C),
SMARTMOS® technology, gallium arsenide (GaAs), BiCMOS and embedded
memories including magnetoresistive random access memory (MRAM)" (e-
www.motorola.com/files/abstract/overview/GMK2446_ABOUTUS_TECH.html).
Motorola has teamed with STMicrolectronics and Philips to research complementary metal oxide
semiconductor (CMOS). Motorola believes that "[u]sing a combination of strategic internal and
external manufacturing sources, Motorola provides flexible manufacturing to meet changing
market needs" (e-
www.motorola.com/files/abstract/overview/GMK2446_ABOUTUS_TECH.html).