Motorola Positioning Itself for 2009 and 2010

Restructuring any company is a tough. However, for Motorola the year 2008 has been a disaster. Between the recession and its own (pre-recession) plans to restructure the company falling apart, the year 2008 has not been kind to Motorola.

Motorola’s(NYSE:MOT) China contract is the break the company needs to rally around some good news. The China contract is a solid way for Motorola(NYSE:MOT) to re- establish itself in China. The company has been doing business in the country for at least 15 years so getting the contract was not as hard as most investment bankers believe. However, anyone ever having done business in China knows that the contract award to Motorola(NYSE:MOT) still took some doing on the part of Motorola.

Thank goodness China is such a huge marketplace. True, the country is getting hammered with this global recession but the market is still huge and now is the time to position a company in this marketplace. China is a large enough market to enable telecom companies to nab small contracts. The contracts are small sub-billion dollars but still large enough to keep cash flowing through vendors like Alcatel(NYX:ALU) and Motorola. The year 2009 will be tough even for China. However, as I have said many times before, the 2009 goals for all telecom companies are to focus on cash flow even minimal cash flow and to position themselves for an emergence from the recession in late 2010.

The challenge for Motorola(NYSE:MOT) is surviving the next 20 months. To generate cash, it will need to win small contracts. Until the recession is over, companies like Motorola(NYSE:MOT) wi ll need to engage the carriers continually; addressing both large and small contracts. Large contracts will take some work to win but smaller contracts will be easier to sign quickly.

Until this recession is over the most any company can expect are illusory promises of future business from the carriers. Investors need to keep an eye open for a contractual construct called the “master service agreement” also called the “general purchase agreement”. The master service agreement/general purchase agreement is contractual construct that many carriers use to close deals with vendors. The agreement does not bind the carrier to any specific monetary purchase level. In other words, when you hear a vendor has signed a billion dollar contract, it does not mean the carrier is required to spend a billion dollars but has promised to buy equipment and that the levels may be as high as a billion dollars. This is how the carriers do business and quite frankly it makes sense; it is all part of the carriers’ process of managing quality from a vendor; money spent is tied to equipment performance. Most of the contracts also give the carriers to decide not spend any money – effectively the contract places the vendor on a short list of approved suppliers. The contract construct effectively keeps the vendors’ feet to the fire. Not a bad thing for the carriers. In the case of Motorola(NYSE:MOT) it may help focus the company's restructuring efforts.

Investors will need to keep an eye open because despite the news the vendors will not net as much money as you hope. As I always say; “investors do your diligence” and “understand the information the company has provided you”.

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