Motorola Lives! A year ago, Wall Street was writing Motorola's obituary. But the company changed its ways, and now the stock is very much alive.
By Daniel Roth

(FORTUNE Magazine) – In early August, Motorola CEO Chris Galvin took the podium at the Westin O'Hare hotel to kick off his company's summer analyst meeting. After a brief introduction, Galvin launched into his speech: "I want to begin by saying, What a difference a year makes."

Talk about understatement. A year ago the only joy investors were getting from Motorola was in bashing Galvin on Internet message boards. He had made it pretty easy: in his brief tenure, Galvin had lost Motorola's lead in wireless phones by focusing on analog when everyone wanted digital, had pushed sales in Asia when the Asians had stopped spending, and had promoted internal battles when most CEOs couldn't say "synergy" often enough. As FORTUNE pointed out last July in an article titled "Burying Motorola," the company had gone from "poster boy to whipping boy." Sighs Ronjon Nag, a six-year Motorola veteran who recently left to start his own Internet company, "The pendulum's always swinging on Motorola. When I joined, everyone loved them. Then everyone hated them. Now the pendulum is swinging back."

That's right, Ronjon. Wall Street is once again falling for those engineers in Schaumburg, Ill. The stock has gone from a low of $38.38 last year to $100.19 in July, despite the recent crash of Iridium, a satellite telecom company backed by Motorola. But don't worry, there's still time to get in early on the love fest. At a recent $91.75, the stock's trading at 30 times expected 2000 earnings, cheaper than shares of rivals like Nokia (34 times 2000 earnings), Lucent (40 times 2000 earnings), or Qualcomm (71 times earnings).

Suddenly, old decisions by Motorola that were once seen as signs of incompetence have acquired a rosy glow. Take Iridium. With its $5 billion price tag and 66 satellites, the project has little to show for itself but a stack of Chapter 11 documents. Motorola's facing a possible $2 billion write-off--this after already having taken a $126 million charge for nearly worthless Iridium bonds.

Such write-offs might normally be disastrous for investors. This time, though, the Street sees a silver lining. "Iridium is what's going to offer us a good price to get into Motorola," says Greg Turk, until recently an analyst with asset management firm Amcore Investment Group in Rockford, Ill. Amcore sold its stake in Motorola at $75 in early April. Now Amcore wants to jump in again, especially if Iridium's woes drive Motorola back into the mid-80s.

So what has analysts salivating and Galvin gloating? For one thing, Motorola rediscovered how to make good phones, crucial because wireless handset sales make up about 40% of the company's revenues. After being drubbed for lacking a digital phone, Motorola has bounced back with a tiny digital V-Series (about the size of a Doublemint Plen T Pak) that has taken off in Nokia-dominated Europe. That helped Motorola double its handset sales in the second quarter of 1999. And later this year the company is set to launch a version of its cute StarTac compatible with AT&T's popular One Rate plan--a Nokia stronghold.

"Motorola's on the way to recouping their position as No. 1," says industry watcher Herschel Shosteck. Indeed, earnings are also recovering. After last year's nearly $1 billion loss, Motorola is expected to earn $1.3 billion in 1999.

Of course, the company has gotten its phones right before, only to then lose its way. After Motorola's success with the MicroTac in 1989 and the StarTac in 1997, the company believed it couldn't fail at phones. It did. What's different now is that Motorola appears to be fixing its famously insular, arrogant culture. When things turned ugly in June 1998, Galvin announced a mammoth restructuring program that cut jobs, eliminated low-margin businesses, and perhaps most important, changed his employees' focus. Where once engineers invented first and came up with a business plan later, now they must figure out what customers want, even if that means going outside for help.

In the past seven months Motorola has signed deals with telecom heavyweights like Lucent and Silicon Valley stars like Cisco and Sun. If Motorola can collaborate successfully, the company could have high-margin products like fast, crashproof wireless networks ready in 2000 or 2001.

"They always tried to go it alone," says Ed Snyder, telecom analyst at Hambrecht & Quist. "They were Motorola. They could invent anything. Now they're starting to realize that the real goal is to get to market with the best products, sell these things, and not just be some hobby shop for engineers." Let the love fest begin.