I, Baruch, am supposed periodically to rant about my job under the category “Lens Grinding” — so called because that was the way that Spinoza earned enough money to philosophise; grinding glass lenses for telescopes, microscopes and other uses. It was highly specialised work, extremely technically demanding, and very much on the hard cutting edge of C17th high tech. Spinoza was very good at it: “the lenses that the Jew of Voorburg has in his microscopes have an admirable polish,” wrote noted Dutch scientist Christiaan Huygens. This is sort of like Steve Jobs praising one’s ability to design computer hardware.
Unlike Bento, I actually have a proper job. I am what they used to call a “stock operator”; I co-manage a global tech fund. I pick stocks by analysing high level trends and financial minutiae, make hard decisions based on woefully incomplete information, act on it anyway and take the consequences. I wouldn’t do anything else. I surprise myself by being right quite often, and by generally making pots of money for other people. For my first trick I will tell you about Motorola, a particular bugbear of mine, and a story you can find nowhere else. IN NO WAY, OF COURSE, IS ANYTHING THAT FOLLOWS TO BE VIEWED AS ANY SORT OF INVESTMENT ADVICE. Although as I am a genius, you’d be crazy not to do as I say.
I’ve wanted to short Motorola (or Moto, as I call it) stock for a while, finding mission statements like this to be the sign of a collective of sick, deluded minds:
We’re scientists. We’re artists. Most of all, we are a global communications leader, powered by, and driving, seamless mobility. Motorola is revolutionizing broadband, embedded systems and wireless networks – bringing cutting-edge technologies into your everyday life, with style
Never mind the cringing hubris of the first 2 sentences; ignore the too easy, manipulative use of “power” words like “driving”, revolutionizing” etc: what does “seamless mobility” actually mean? I bet they don’t know either. “Seamless”? Does my normal “mobility” have “seams”? The juxtaposition of Moto’s out of date handset portfolio, financial results and market share loss with its pledge to bring “style” into our “everyday” lives, oh thank you great Moto, just makes this statement more embarassing.
Fact is, Moto consistently over-promises and delivered one, just ONE good handset during the tenure of CEO Ed Zander, the V3 RAZR which was an in-house concept phone set for release well before he arrived, and which in any case I am told was originally designed by its outsourcing partner Foxconn. To be honest I am not quite sure what Moto really “does” in terms of handsets: truly, they only make about 30% of their handsets themselves. The rest are outsourced. But they don’t even design most of these outsourced phones themselves! That’s right, they simply receive the phones from a Taiwanese lorry driver, prepacked in boxes with “Motorola” stamps, and flog them to retailers at what was a fine margin. Nice work if you can get it, and they’ve can’t anymore. In many ways, Moto is simply a brand and a distribution network, and not much else.
Their big problem right now is reliance on this one big handset, the once super-thin RAZR, and their brain dead decision to make all their new handsets look exactly like the RAZR, and have the same “cool” vowel-less übercapitalised naming scheme. Now you can buy a KRAZR, a better specced unit originally sold for €400; the almost identical-looking RAZR was going for maybe €130, an end-of life price, when they brought KRAZR out. Seeing as no-one could tell the difference, unsurprisingly the punters stuck with the RAZR, and KRAZR failed dismally. They also brought out the lower cost, less-well specced and higher margin W-series at the same time, for €99; for just a bit more you could get the better specced RAZR, and W-series failed too. Moto is STILL dependent on its now zero margin RAZR product, despite the fact that it came out in 2004. Inventories of the new models have piled up. Last year Moto also decided to make tens of millions of ageing low end phones to ship into emerging markets which also piled up unsold; it still has to work through all this useless stock and deal with very angry retailers, as well.
Now, of course, you would think, Moto has learned its lessons and has cancelled RAZR, ended its dependence on RAZR clones, and will come up with a new handset platform and a new naming scheme. No. Next model is called SCLPL (scalpel). Wonder what that one will look like. It’s not out yet. To store up the dyke in the meantime Moto have, I am serious, decided to paint the RAZR a different colour. I am not surprised; having met Ed Zander at investor conferences, he did not inspire me as an intelligent man who would honestly answer my questions. I have to speak to Investor Relations sometimes, and I have yet to meet an IR guy at a major company who was less informative, less embarassingly full of himself and his company just ahead of a major breakdown in its shares. We’re scientists. We’re artists. We’re idiots.
Why this lengthy exposition in a site ostensibly devoted to Spinozist philosphy? I don’t really know, but Moto stock has fallen over 30% in the past 6 months while main peer Nokia (which I own) is up 30%, and the Nasdaq up 8%. Moto has reduced its cash position with M&A in the same way a drunk gambler down on roulette thinks he can get it all back if he can find someone to buy his watch. It’s a disaster, and the fanboy press-release-printing sell side analysts won’t tell you. Activist investor Carl Icahn has bought 3% of Moto, and is agitating to get a seat on the board. He is bitterly opposed in this by Ed Zander (also chairman of the board as well as CEO, a position akin to being US president and Senate and House majority leader simultaneously). It may be that someone reads this and owns some Moto shares, and is confused about this whole proxy vote issue. For god’s sake vote for Icahn; he probably knows nothing about handsets, and won’t be able to do anything to turn the company around for the next 6-9 months. But it will be the first step on the road to some degree of recovery for what has been, in the past, a great company, which employs thousands of people. Otherwise this nose-dive is only set to continue.
As for me, unless something changes, I’m not buying Moto until it hits $11-12. It’s at $17 and change right now.