Did Moto get the right guy?August 4, 2008: 7:23 PM ET
Motorola needed an executive with certain skills to lead its mobile phone business: An understanding of consumer electronics, a knack for cutting supply chain costs, knowledge of global retail.
That's not what the company got. Instead, Motorola (MOT) announced Monday that Qualcomm (QCOM) Chief Operating Officer Sanjay Jha will come aboard as co-CEO and designated handset division turnaround guy. By hiring Jha, Motorola's board is betting that an expert on phone technology can quickly figure out how to make them more efficiently and sell them around the world.
By all accounts Jha is a smart leader known for driving stellar results at Qualcomm while he climbed the executive ranks. But he doesn't have experience solving the kinds of problems the Schaumburg, Ill.-company now faces. The handset business has been losing money for years as management mistakes mounted. In the 1990s, executives failed to anticipate the shift toward digital technology. More recently, they were slow to produce popular 3G wireless handsets. And along the way, Motorola often relied too much on one-hit-wonders like the Razr phone rather than design versatile phones that could be manufactured at low cost. (Affordable phones are a must in developing markets like China and India, where ultra-efficient Nokia is cleaning up; see Motorola's split decision may be the wrong call.)
Moto tried to find someone with the supply chain pedigree to fix all this, but got no takers. The board seemed close to wooing Hewlett-Packard (HPQ) PC chief Todd Bradley, whose resume includes overhauls at Gateway, Palm (PALM), and HP – but after the news leaked to The Wall Street Journal in early June, Bradley quickly assured HP employees that he was staying put. (I predicted at the time that Motorola wouldn't be tempting enough; see Why Moto won't get its man.) That was about three months into the search, and according to Motorola co-CEO Greg Brown, it's also around the time when he first spoke to Jha about taking the job.
Jha's background is far different from Bradley's. Bradley is an operations guy who got involved in technology; his early management jobs were at logistics-heavy shops like GE Capital (GE) and FedEx (FDX). Jha is a technologist who is now involved in operations. He has a strong engineering background, as proven by his doctorate in electrical engineering, which he earned from the University of Strathclyde, in Scotland. On the positive side, Jha's previous job at Qualcomm put him in frequent contact with global wireless carriers, the same folks he'll need to persuade to carry Motorola's phones. On the negative side, many of Jha's recent roles emphasized technical knowledge rather than supply-chain expertise; Qualcomm outsources the manufacturing of its chips and doesn't sell directly to consumers.
None of this means Jha is doomed to fail at Motorola; in fact, Wall Street is bullish on his prospects. Motorola stock closed 11% higher for the day, driven by the news, and analysts had mostly nice things to say. UBS analyst Maynard Um pointed to his "strong execution history" at Qualcomm, and American Technology Research hailed his "great technical background, industry experience and business savvy."
Still, don't be surprised to see him hire some ringers to take a fresh look at manufacturing and retail. "I'm going to take about 90 days working with the team here," Jha told Fortune on Monday. "I don't come here without any ideas – I have very strong ideas – but I'll be working with a team here to determine what are the right next steps on the chipsets and platforms strategies." He said the next year's worth of phone introductions will probably go as planned, so his changes won't be obvious until the second half of 2009.
What kinds of changes will Jha make? When I asked about how Apple's (AAPL) iPhone and Google's (GOOG) upcoming Android platform have altered the competitive landscape, he sounded ready for the challenge.
"It's clear that the handset business is changing as convergence with the Internet, mobile broadband, and Web 2.0 changes the services that are possible to be delivered to the handset," he said. "I think there are products in the marketplace that have demonstrated that if you can deliver a leading-edge user experience with broadband connectivity and seamless Internet access, consumers like that. I really believe that Motorola has an opportunity to lead in that space, and I'll be focused on making sure that we do all the right things to address that marketplace."
The new guy will have plenty of incentive to make good on that pledge to turn Moto's phone business around. On top of his $1.2 million salary and annual cash bonus of up to $2.4 million, Jha's welcome package includes personal use of the corporate jet, relocation expenses, a promise to make him whole if he loses money on the sale of his home in San Diego, and another promise to pay him $30 million in cash if Motorola fails to spin off the cell phone division before November 2010. He will be entitled to stock options worth 3% of the mobile devices division if it is made independent before that deadline. And of course, there are the equity awards: 3.67 million restricted stock units with a present value of more than $35 million, which he will receive over the next three years; and an option to buy 16.6 million shares at current prices. [See the employment agreement here.]
That should keep him from having to worry too much about the move to the Chicago area – and free some time to brush up on the supply chain stuff.