Motorola, Inc.

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Motorola, Inc.

1303 East Algonquin Road
Schaumburg, Illinois 60196
U.S.A.
(708) 397-5000

Public Company
Incorporated: 1928 as Galvin Manufacturing Corporation
Employees: 102,000
Sales: $8.25 billion
Stock Index: New York Midwest London Tokyo

Motorola’s story is an American classic. It begins during the 1920s, when a small-town Illinois boy, Paul Galvin, went to Chicago to seek his fortune. His story continues today in a multi-billion dollar corporation with operations throughout the world.

Paul Galvin returned from World War I with an interest in the technological changes of the time. In 1920 he worked for a Chicago storage-battery company, and one year later he opened his own storage-battery company with a hometown friend, Edward Stewart. After two years of rocky operations, the government closed the business for non-payment of excise taxes. The former partners, undaunted by this setback, joined forces again three years later when Galvin bought an interest in Stewart’s new storage-battery company. But with the rise of electric power, batteries lost popularity with the public. To keep their business afloat, Stewart created a device that allowed a radio to be plugged into an ordinary wall outlet, aptly named the “battery eliminator.” Once again, the storage-battery company failed, though Galvin was able to buy back the eliminators at the company’s public auction. Joe Galvin joined his brother Paul this time to peddle the eliminators to various retail distributors like Sears, Roebuck and Company. In 1928 Paul formed the Galvin Manufacturing Corporation, with five employees and $565, and continued making battery eliminators.

During the Great Depression Galvin Manufacturing Corporation found itself burdened by inventory that it couldn’t sell because of restricted market conditions and underselling by other manufacturers. To rectify this situation, Galvin began experimenting with the virtually-untouched automobile-radio market. Before this, automobile radios had been deemed impractical because they had very poor reception. The first commercially successful car radio came out of Galvin Manufacturing in 1930 under the brand name Motorola. The name, coined by Galvin, is a hybrid of “motor” and “victrola.” The units sold for about $120 including accessories and installation, which compared favorably with the $200-$300 custom-designed units then available.

During the 1930s the company also established its first chain of distributorships (Authorized Motorola Installation Stations), began advertising its products in newspapers and on highway billboards, and started to research radios to receive only police broadcasts. The market for police radios appeared so promising that the company formed a police radio department. In 1937 Galvin Manufacturing entered the home-radio market, introducing push-button tuning at that time.

In 1936 Paul Galvin returned from a tour of Europe with his family, convinced that war was imminent. Knowing that war could provide new opportunities, he directed research into ways his company could be useful to the military. The Handie-Talkie two-way radio and its off-spring, the Walkie-Talkie, resulted. Used by the United States Army Signal Corps, these were among the most important pieces of communications equipment used in World War II.

Paul Galvin was always concerned with the welfare of his employees and in 1947 he instituted a very liberal profit-sharing program that was used as a model by other companies. By this time, the company was employing around 5,000 people and had formed a human-relations department. Galvin’s son Robert and Daniel Noble, an engineer who would eventually have a tremendous impact on the future of the company, joined Galvin, and in 1947 the company officially changed its name to Motorola.

The first Motorola television was also introduced that same year. It was more compact and less expensive than any of the competitors’ models—Motorola charged $180, while its nearest competitor charged more than $300. The Motorola set became so popular that within months of its introduction the company was the fourth-largest seller in the nation.

Later in 1947, Motorola bought Detrola, a failing automobile-radio company that had manufactured car radios for the Ford Motor Company. The purchase was made on the condition that Motorola retain Detrola’s contract with Ford. This deal greatly strengthened the company’s automobile-radio business. Motorola subsequently supplied 50% of the car radios for Ford and Chrysler as well as all of the radios for American Motors.

The creation of the transistor in 1948 by Bell Laboratories marked a major turning point for Motorola. The company had concentrated on the manufacture of consumer products, and Paul Galvin felt that the company was unequipped to enter the transistor and diode field. However, with his son Robert and Dan Noble advocating the company’s expansion into this new market, a semiconductor-development group was formed. The first Motorola product to come out was a three-amp power transistor and later a semiconductor plant was constructed in Arizona. As a result of this expansion Motorola supplied transistors to other companies for use in products that Motorola also manufactured. In effect, Motorola found itself in the awkward position of supplying its competitors with parts.

During the 1950s, Motorola was involved in the Columbia Broadcasting System’s failed entry into the color-television industry. Motorola used the CBS designed and produced color tubes in its color-television sets. After a convoluted struggle for approval from the Federal Communications Commission (FCC), the FCC rejected the CBS system in favor of a system developed by the Radio Corporation of America (RCA). Despite this setback, Motorola pioneered new features in television technology, including a technique for reducing the number of tubes in black-and-white sets from 41 to 19.

By the middle of the decade, Paul Galvin realized that the company had become too large for one man to continue making all the decisions. He granted divisional status to various businesses, giving each its own engineering, purchasing, manufacturing, and marketing departments and regarding each as an individual profit center. This was the beginning of Motorola’s famous decentralized-management scheme. As part of this reorganization, Robert Galvin became president and each divisional manager an executive vice-president. Paul Galvin became chairman of the board and CEO, which he remained until his death in 1959.

Beginning in 1958, Motorola became involved in the space program. Virtually every manned and unmanned space flight since that time has been equipped with some piece of Motorola equipment.

Motorola made several acquisitions during the 1960s that left observers baffled. It purchased, and sold almost immediately, Lear Inc.’s Lear Cal Division, which manufactured aircraft radios. This was followed by the purchase and subsequent divestment of the Dalberg Company, a manufacturer of hearing aids. Acquisitions were also considered in the fields of recreation, chemicals, broadcasting, and even funeral homes. This trend continued into the 1970s and constituted a period of real adjustment for Motorola. However, two very important corporate strategies grew out of this floudering.

First, the company began to expand operations outside the United States, building a plant in Mexico and marketing Motorola products in eight countries, including Japan. An office in Japan was opened in 1961, and in 1968 Motorola Semiconductors Japan was formed to design, market, and sell integrated circuits. Second, toward the end of the decade, Motorola gradually began to discontinue its consumer products, a watershed in the company’s history.

Motorola’s radio and television interests were the first to be disposed of. In 1974 Motorola sold its consumer products division, which included Quasar television to the Matsushita Electric Industrial Company of Japan. Three years later the company acquired Codex Corporation, a data-communications company based in Massachusetts. In 1978 Universal Data Systems was added. At the end of the 1970s Motorola began phasing out its car-radio business. These maneuvers were intended to concentrate Motorola’s activities in high technology.

Motorola’s largest and most important acquisition came in 1982 with its purchase of Four-Phase Systems, Inc. for $253 million. A California-based manufacturer of computers and terminals, Four-Phase also wrote software for its own machines. The purchase puzzled observers because Four-Phase was in serious trouble at the time. Though Four-Phase did quite well in the 1970s, by the end of that decade its product line was aging, its computer-leasing base had grown too large, and its debt was tied to the rising prime rate. These problems had their origin in the company’s insistence upon manufacturing its own semiconductors instead of purchasing commercially available components—an insistence that consumed time and money, and also meant that new product developments at Four-Phase were slow in coming. However, Motorola was looking for a custom-computer manufacturer and was impressed with the sales force at Four-Phase: Motorola’s grand strategy was to branch into the new fields of office automation and distributed data processing.

Distributed data processing involves the processing of data through computers that are geographically distributed. The purchases of both Four-Phase and Codex made perfect sense when viewed in light of Motorola’s intent to enter this field. The plan was simple: data processing provided by Four-Phase computers would be linked by data-communications equipment provided by Codex, and Motorola proper would provide the semiconductors and much of the communications equipment for the operation. The goal was to create a fully mobile data-processing system that would allow access to mainframe computers from a pocket unit. Motorola also figured that its experience in portable two-way radios and cellular remote telephone systems would prove valuable in this endeavor. Although Motorola was able to turn Four-Phrase around temporarily, Four-Phrase lost more than $200 million between 1985 and 1989.

The cellular remote telephone system was developed by AT&T’s Bell Laboratories in the early 1970s. The system functions by dividing an area into units, or cells, each with a low-level transmitter that has 666 channels. As a driver using a phone moves from cell to cell, his call is carried on the transmitter in each successive cell. After he has left a cell, the channel he was using becomes available for another call in that cell. (Earlier remote systems relied on a powerful transmitter covering a large area, which meant that only a few channels were available for the whole area.) Motorola aided in the design and testing of the phones and supplied much of the transmission-switching equipment. Motorola’s early estimates of the cellular phone market seemed astronomical—one million users by the early 1990s (in fact, there were more than 4 million users in 1989). However, the system developed major problems. There were massive licensing and construction problems and delays. Added to this were complaints about the quality and reliability of Motorola’s phones compared to Japanese-manufactured remote phones. A surplus of phones, coupled with the desire to capture a large market share, soon prompted Japanese companies to cut their prices radically—some by as much as half. Motorola went straight to the United States government to request sanctions against the Japanese companies. In 1986 the commerce department declared that eight Japanese companies were in fact “dumping” (selling at a below-cost price) and were liable to special duties. This has given Motorola a new edge in the cellular-phone market—it is now the world’s top supplier of cellular phones—though the competition remains instense.

Motorola’s relations with Japanese companies has been checkered. In 1980 it formed a joint venture with Aizu-Toko K. K. to manufacture integrated circuits in Japan. Two years later Motorola acquired the remaining 50% interest in the company from Aizu-Toko and created Nippon Motorola Manufacturing Company, a successful operation run along Japanese lines mostly by Japanese.

Also in 1982, Motorola received a $9 million order for paging devices from Nippon Telegraph & Telephone. These ventures were followed by vigorous pleas from Robert Galvin for the U.S. government to respond in kind to Japan’s trade tactics. In fact, Galvin is a founder of the Coalition for International Trade Equity. This organization has lobbied Congress for legislation that would impose tariffs on foreign companies that are subsidized by their governments. Motorola further called for a surcharge on all imports to reduce the U.S. trade deficit. Other major companies in the United States (Boeing and Exxon among them) have rejected these measures on the grounds that they would spark trade wars that would damage the position of U.S. companies doing business with Japan.

In 1986, Motorola made a groundbreaking deal with Japan’s Toshiba to share its microprocessor designs in return for Toshiba’s expertise in manufacturing DRAMs, or dynamic random access memories, a market the Japanese had driven Motorola, along with nearly every other American semiconductor company, out of with its dumping practices.

In 1988, Motorola took on the Japanese in another way: that year its Boynton Beach, Florida plant began producing the company’s Bravo model pocket pager in a fully automated factory. The prototypical facility used 27 small robots directed by computers and overseen by 12 human attendants. The robots can build a Bravo within two hours of the time an order is received at corporate headquarters in Schaumburg, Illinois; the process normally would take three weeks. Through this and other corporate measures focusing on improving quality, Motorola hopes to reduce manufacturing errors to three mistakes per million operations by 1992.

In 1989 Motorola introduced the world’s smallest portable telephone, but soon found that its new product was excluded from the Tokyo and Nagoya markets, two cities that together represent more than 60% of the $750 million Japanese cellular phone market. When Motorola cried foul, the Japanese government agreed to allow adapted Motorola phones in Tokyo, but only for use in automobiles. This excluded the 90% of portable phones used on trains. In response to these tactics, Motorola led the push to impose trade sanctions on certain Japanese imports. President George Bush publicly accused Japan of being an unfair trading partner and threatened to take punitive action if the Japanese did not remove barriers to free trade.

The growth of the computer industry has provided new opportunities for Motorola. Throughout the 1980s, the company’s most popular 68000 family of microchips powered PCs and workstations built by Apple, Hewlett Packard, Digital Equipment, and Sun Microsystems, among others. Motorola battled Intel, whose chips were the cornerstone of IBM and IBM-compatible PCs, for dominance in the microchip market. In 1988, Motorola unveiled its 88000 microchip series, which through the use of reduced instruction-set computing (RISC) computes twice as fast as Motorola’s top-of-the-line conventional chips. But Motorola faces stiff competition in this market, especially from Intel, which introduced an even more powerful chip just after the 88000 series came out.

Motorola is currently divided into six operating units: the Communications Sector, the Semiconductor Products Sector, the General Systems Group, the Information Systems Group, the Automotive and Industrial Electronics Group, and the Government Electronics Group. Aerospace and defense contracts with the government account for about 10% of Motorola’s sales and revenues. The automotive group manufactures ignition systems, engine-management controls, and instrumentation.

Future developments at Motorola will include further exploration of robotics, instrumentation, and CAD/CAM (computer-aided design and computer-aided manufacturing). The company hopes its annual sales will top $15 billion in the early 1990s. The steps it has taken during the last decade to provide itself with a related yet diversified group of products and Motorola’s campaign for quality, highlighted by its receipt in 1988 of the first annual Malcolm Baldrige National Quality Award, should help it achieve that goal.

Principal Subsidiaries:

Codex Corporation; Motorola Credit Corporation; Motorola International Capital Corporation; Motorola International Development Corporation; Universal Data Systems; Motorola Componentes de Puerto Rico, Inc.; Motorola Portatiles de Puerto Rico, Inc.; Motorola Portavoz de Puerto Rico, Inc.; Motorola Telcarro de Puerto Rico, Inc.; Motorola Canada Ltd.; Motorola Data International, Inc. (Canada); Storno, S.A. (Denmark); Motorola Limited (U.K.); Motorola Semiconducteurs S.A. (France); Motorola GmbH (West Germany); Motorola Asia Ltd. (Hong Kong); Motorola Semiconductors Hong Kong Ltd.; Motorola Israel Limited; Motorola Korea, Ltd.; Motorola Malaysia Sdn. Bhd.; Motorola Semiconductor Sdn. Bhd. (Malaysia); Motorola de Mexico, S.A.; Motorola Electronics Pte. Ltd. (Singapore); Motorola Electronics Taiwan, Ltd.