MOTOROLA'S GOOD CALL

Robert Brunner never expected to carry a Motorola phone. A partner at San Franciso's Pentagram Design, Brunner is a fan of fashionable products like Philippe Starck watches and Sony digital cameras. The 76-year-old Motorola, on the other hand, has traditionally been "good at engineering things, not necessarily good at doing cool, well-detailed objects," Brunner says. Nevertheless, last fall he found himself joining countless other gadget hounds in a rush to the nearest Cingular store to buy the $349 Razr V3: an improbably thin mobile phone made of anodized aluminum, with an etched keypad and an antenna concealed in the mouthpiece. Today, whenever Brunner takes out his Razr and lays it on a conference-room table, "the geeks crowd around," he says. "Everybody wants to play with it."

The edge from Moto's Razr has helped drive a remarkable turnaround at one of the oldest tech companies in America. Last week, analyst firm Gartner reported that brisk Razr sales have vaulted Motorola past Samsung and into the No. 2 spot in the mobile-phone market, behind sagging leader Nokia. Motorola hopes to build on this momentum by leaning more heavily on innovative design, and plans to launch a new suite of distinctive phones later this year such as the sleek, rounded Pebl. It's all aimed at making Motorola products stand out--particularly in an age when mobile phones and digital cameras without a distinctive look are instantly undercut by copycat competitors.

The company is also hoping to get an early beat on the newest competitive arena for mobile phones: music. This Thursday, Motorola is expected to announce the first handsets that will carry Apple's popular iTunes music software. CEO Ed Zander, the former president at Silicon Valley's Sun Microsystems who joined Moto early last year, forged the alliance with his old pal Steve Jobs. Zander can boast that 2004 was the company's most profitable year ever and says new designs and mobile-music efforts will help invigorate its stock price, which has remained flat since he took over. "We got this company out of hospital and got it jogging," he says. "Now we want to get it running."

Motorola never should have been in intensive care in the first place. Based in suburban Chicago, it built the first cell-phone networks in the '80s and at one point made half the world's cell phones. In 1995, it launched the hit StarTac clamshell phone. Then the sprawling firm, which makes other products like cable boxes and police radios, was slowed by a lack of innovation and decentralized management under Christopher Galvin, grandson of the company's founder. In the mobile-phone business, which now makes up half its revenues, Motorola lost its lead to nimble players like Nokia and Samsung. "This was a 10-year decline," says analyst Paul Sagawa of Sanford C. Bernstein.

When Motorola design director Jim Wicks joined the company three and a half years ago--after spending a decade at Sony--industrial design was an afterthought. Just a few years after the StarTac success, products were being built in engineering labs, then sent to what employees called the "beauty parlor" for a last-minute face-lift. "We decided we were too fragmented in how we thought about design," Wicks says. Under former CEO Mike Zafirovski, who took over from Galvin, design and engineering teams were better integrated. The design team also got stylish new offices in downtown Chicago, a more inspiring setting than the drab suburban headquarters in Schaumburg. Meanwhile, the Razr project was launched to build a superskinny phone, based on a belief that with phones--just as in other areas of life--thin is always in.

Zander took over early last year just as the company started shopping the Razr. But most wireless carriers didn't think such an expensive phone would sell. Wicks had given Zander a demo handset, and Zander told the carriers about the strong reactions he was getting from consumers when he carried it in public. When Cingular took a chance, and quickly sold more than a million phones, Zander and mobile-phones chief Ron Garriques gave the green light to other ambitious design projects, like the Pebl. Wicks describes it as a feminine counterpart to the masculine Razr and says designers actually drew inspiration from the glossy stones found on riverbanks. Motorola's phone strategy now resembles the game plan of traditional automakers. Future high-end Motorola phones will carry either the Razr or Pebl design signature--in the same way styling cues are carried across lines of Dodge trucks and SUVs. (Moto execs also hint at a third design family.)

Carving out a lead in the emerging music-phone business may be a little trickier. The music phones to be launched this month will allow customers to play their existing iTunes songs, and presumably buy new ones, on their Motorola phones. The problem for Motorola and Apple is that wireless operators like Sprint are interested in setting up those stores themselves; a rival alliance by Nokia and Microsoft, announced last month, will cater to that wish. Zander argues that consumers will demand brands like iTunes but concedes that the carriers will ultimately get the first shot at selling songs on phones. Analysts agree that the carriers have more leverage.

The biggest challenge will be to sell the Motorola turnaround to investors who still remember the recurring earnings and product disappointments of the past. Zander talks about the company's being stuck in the "penalty box," and his broad vision for escaping is called "seamless mobility." Only Motorola, he preaches, has all the pieces of technology needed to turn phones into the center of our expanding digital lives. For example, Motorola execs talk of a forthcoming music phone within the Razr family, Rokr, that might recognize songs being played in a club, let users download them to their phones and then send them home to their cable boxes and stereos. That would definitely be cool, and for Motorola, that's the goal.

Correction