Motorola Mobile Devices Business: “turn Up” or “spin off”
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SITUATION ANALYSIS
Motorola Inc. is facing a financial slump with operating losses of 553 million in the year 2007 and drastic share price drop, because of its poorly performing Mobile Devices Business division. The division has been performing poorly because of its inability to come up with a high end replacement of RAZR in order to boost sales and increase profits.
Since the launch of RAZR in February 2004, MDD focussed mainly on capitalizing on the tremendous popularity of RAZR. The division seemed to have a limited vision of just growing in volume and market share. In order to achieve that, it resorted to aggressive price slashing of RAZR which helped the company increase its market share but it backfired on MDD with steep decline in its profit margins.
Further, MDD also failed in countering competition from other players like Nokia, Samsung etc. It concentrated only on one product and came up with KRZR which was just an upgraded version of RAZR. It failed to attract customers mainly because it was very similar to RAZR and also the customers were accustomed to the price slashes. Motorola, a consumer brand known for its innovation, failed to come up with something innovative or class apart which would compel the customers to buy its product.
There was a serious failure at the research & development front which was not equipped with market & technology forecast to gauge the customers requirements and launch the right product. This led to a steady slip in the market share, profits turning into losses and loss of investors confidence. Profitability of the mobile devices division slipped to a negative figure -8.06% during the last quarter of 2007. In order to survive competition, Motorola needed to have a range of products catering to different market segments.
Mobile Devices division has remained an integral part of Motorola owing to its significant contribution to Motorolas total revenue. Plummeting profits of MDD is also impacting other two profitable divisions. Poor performance of one division is creating a negative image for the entire Motorola organization in the market and this may affect the sales and market image of other divisions.
Lastly, there have been mistakes on the part of top management of the company, they appear to be very short sighted with their only focus being making profits and increasing the market share through RAZR. They should have capitalized on the Motorolas USP of being the “leader in innovation”.
So, a strategy needs to be adopted to reposition the bleeding cell phone division to profitability and also the chosen strategy should be effective and efficient in facilitating restructuring and growth of all the divisions.
THE PROBLEM
Considering the financial slump faced by Motorola because of poor performing Mobile Devices division, a decision has to be made on how to rationalize the companys cost structure and working to restore the cell phone business to profitability.
THE OPTIONS
Spin off the Mobile Devices division into a separate independent company.
Turn up the Mobile Devices division by continuing with the current organization structure.
Sell off the cell phone division.
CRITERIA OF EVALUATION
Impact on Motorola and its other divisions.
Investors