Archive for the ‘telecom’ Category

Why Splitting Up Motorola Is a Bad Idea

March 26, 2008

This morning, Motorola, an 80-year-old tech icon with a history of innovation, announced it was splitting up the company into two pieces: its flagging cellphone unit is one piece and the other is its broadband and mobility operations, which make wireless networking gear and television set-top boxes. Motorola shareholders would receive stock in both companies.

I know Motorola shares are up 5% on the news. But this seems like a bad idea to me. Motorola’s number one problem at the moment is that its cell phone unit has not come up with a hit product in a few years since releasing the Razr phone to great fanfare in 2004. Separating the weak handset division, which accounts for about 53% of revenues, from the growing enterprise units is not going to solve those issues.

In fact, a split-up will probably exacerbate problems in the handset division. Instead of focusing on creating a great product, the company is going to be distracted by a messy break-up processs, a reverse merger in a sense. What’s more, the separated units will have fewer resources to invest in the future, and there will be the inevitable round of lay-offs. The most valuable remaining employees will probably bail the sinking ship and get another job. One more reason: Apparently, no major handset maker has any interest in buying Motorola’s cell phone unit. If this deal does go through shareholders are going to get a real low-ball valuation.

So why is the company doing this? Mainly because it seems like the most simple answer in the short term, I suppose. Carl Icahn has been hammering the company’s management, and its stock has plunged 45% over the last year. New CEO Greg Brown feels like he has to do something. The split-up creates the impression of forward movemement.

But the truth is there is no quick fix for Motorola. If Brown had cojones, he would keep Motorola together, double down on investment, and swing for the fences. This is not IBM or Hewlett-Packard, after all. It’s a $36 billion conglomerate with three divisions that all operate in basically the same business. Brown’s challenge is relatively straightforward and manageable. All he needs to do is come up with a hit product and Motorola will be fine. Isn’t that why people want to work in the technology industry? Instead Brown is taking the easy way out and putting one more nail in the coffin of an American icon, opting for financial engineering over product engineering.

Fact is, the wireless device business still has huge potential and growth opportunities. As the cell phone morphs into a true computing device, this is going to take a lot of innovation. Plus, as wireless networks open up in the U.S., power should shift away from the service providers to the device makers.

This is a sad day for American technology companies. Where is your courage and vision Greg Brown?

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Revolving Door: More on Sprint’s Poor Customer Service

February 25, 2008

So my investigative feature “Sprint’s Wake-up Call” has been burning up the Web. It’s been the most read, emailed and discussed story on BW.com for the last four days, with 96 comments and counting. Many thanks to a bunch of bloggers for linking to the story, including the diva blogger herself Arianna Huffington, super-activist site The Consumerist, and the tech mavens at GigaOm and CrunchGear.

Over the next few days, I hope to share more of my reporting and thoughts with readers on this blog and BusinessWeek.com that explains why Sprint Nextel has consistently delivered the worst customer service of the U.S. wireless industry, which arguably means the worst customer in America given that cell phone providers consistently rank at the bottom of industry customer satisfaction surveys.

One theme that did not make it into the final version of the story is the incredible turnover that Sprint Nextel has seen in its management of customer service. Over the last 17 months, four different people have run customer service: Cindy Rock, Timothy E. Kelly, Steve Nielsen and Bob Johnson. Last October, Johnson took over as Chief Service Officer from Nielsen, whose tenure only lasted six months. Rock left the company in 2007, according to her LinkedIn profile, and Kelly was one of three top execs to be let go on January 24, one month after new CEO Dan Hesse took over.

What’s the impact on operations? Well, as one former senior executive told me: “It puts things on pause for three to four months. You can’t be successful. You need to have more stability in an organization.”

When I ran this point by Johnson, he said, “I am in a role that I hope to be in for a long time.” Sprint’s customers can only hope he is right on that count.

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Why Sprint Nextel’s Customer Service is So Bad

February 22, 2008

Wanna see the gory insides of America’s worst customer service operation? Then read my new investigative feature “Sprint’s Wake-Up Call,” which takes readers inside the call centers of Sprint Nextel. It’s a whopper based on interviews with 12 current and former employees, U.S. officials, business professors, customers and reviews of court documents.

In the story, new Sprint CEO Dan Hesse also reveals for the first time his plans to turn around the company’s service rep. “We’re beginning to improve customer service already,” Hesse told BusinessWeek. “There will be a lag between when it improves and when the world knows that Sprint’s customer service has improved. There’s always a perception lag.”

Happy reading!

Riverbed CEO: We Can Get Through This

February 18, 2008

Riverbed Technology has enjoyed one of the best-performing tech IPOs of the last two years. Sales of its networking gear that speed the delivery of bandwidth-hogging corporate applications have been soaring. After going out in September 2006 at $9.75, Riverbed shares steadily rose to a high of $52 last October. Since then, the stock has lost its oomph, falling about 60% to around $22 today.

Riverbed CEO Jerry M. Kennelly, a big friendly bear of a man who was a former executive at Inktomi, stopped by the BusinessWeek office last week to talk about his business and why he thinks Riverbed can keep growing through the telecom slowdown.

Will the slowing economy have an impact on the communications business?
I don’t know. There are reasons to be optimistic. We just had our biggest quarter ever.

Then why did your stock get crushed after the Feb. 6 earnings announcement, dropping 11%?
We gave our first ever-guidance. We matched earnings per share guidance for the year and raised our annual revenue guidance. But our first quarter earnings per share target was below guidance. Analysts thought we hired a bunch of sales people. But we just paid out larger sales commissions.

Cisco, the world’s largest maker of networking gear, just spooked the market by lowering its revenue guidance for the year. How is the slowing economy having an impact on your business?
We have a strong pipeline. It was the biggest pipeline in the history of the company. It’s a multiple of our next quarter’s sale goal.

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So you haven’t seen any softness?
We haven’t seen it yet. If we get through the March and June quarter we’ll be in good shape. We’re constructively paranoid and cautiously optimistic.

Why no impact yet?
We sell a product that’s useful to companies in hard economic times. It saves money and makes employees more productive. Compared to Cisco switches and routers, there is a big untapped market for this product. Everyone who needs a router or a switch already has one. They are selling into a mature market. If the economy sneezes they will catch a cold. We can dodge that bullet. We’re new and unsaturated. And it’s a cost-saving product.

What are the cost savings?
They come from consolidating servers in your data center, and because our machines provide greater throughput. We create free bandwidth through our compression technology. That saves money.

You have a lot of customers in the financial services industry, such as Goldman Sachs and Citigroup. Wouldn’t they cut back?
Banks don’t go to zero. They defer $10 million of a $100 million. You just have to make sure you are not in the deferred $10 million. Only 10% of our revenue comes from financial services. We’re very broadly dispersed. We can get through this.

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