UPDATE 5-Motorola CEO Zander to be replaced by COO Brown

(Adds Icahn comment, stock price details)

By Sinead Carew

NEW YORK, Nov 30 (Reuters) - Motorola Inc's (MOT.N) embattled chief executive, Ed Zander, will step down after a year of disappointing earnings and market share losses, raising investor hopes his successor will turn the business around.

Chief Operating Officer Greg Brown, 47, is set to take over as CEO on Jan. 1, Motorola said on Friday. The mobile phone maker has been losing money and customers to rivals such as Nokia Oyj (NOK1V.HE) and Samsung Electronics Co Ltd (005930.KS) amid criticism for failing to come up with a strong successor to its Razr phone.

"It's time for a change," said John Krause, an equities analyst for Thrivent Investment Management, which includes about 900,000 Motorola shares in its $70 billion portfolio.

Krause called for new handset designs and features, cost cuts and an expansion or sale of Motorola's network equipment business, which has been dwarfed by bigger rivals.

"Ultimately we're going to have to see new handsets," he said. "This gives people hope in the near term somebody's going to try to do these things. ... But investors have to be patient. Their patience could be rewarded."

Zander, 60, has come under pressure from shareholders such as billionaire Carl Icahn, who waged and lost a bitter proxy battle for control of Motorola this year.

Icahn may not give Brown much time to turn around the company, saying in a statement on Friday that the leadership change was "long past due" and not enough to address Motorola's "major problems."

Icahn, who holds about 3 percent of Motorola, said it needed to split into several parts to reach its potential and added that it would be particularly important for the mobile phone unit to become a stand-alone company.

Brown, who has worked for Motorola since 2003, was named chief operating officer in March in addition to his role then as head of the network equipment and enterprise unit. The company said Brown did not plan to hire a new COO.

Motorola shifted its focus earlier this year to profitable growth over market share growth at all costs. It also posted its first profit of 2007 in the third quarter. Brown promised to build on these changes.

"We've made a number of changes already," he said in a phone interview. "It's about building on the ones we've made, continuing on the momentum and accelerating new product roll-out and momentum, particularly in mobile devices, and building on the category leadership in the other businesses."

Brown declined to comment on forecasts for the current quarter, or to say when the phone unit would return to profit.

UNDER PRESSURE

Motorola shares closed up 2 percent at $15.97 on the New York Stock Exchange. The stock has lost about 40 percent of its value since October, falling back close to the $14 level it had when Zander joined the company in January 2004.

Zander said the decision to step down was his and that he planned to spend time with his family.

"My date, my doing, my time-frame," Zander told Reuters, adding he had agreed with his wife to hold the CEO role for four years. He said he had recommended Brown as his successor and that the beginning of the year was a good start time.

The company said Zander would stay on as chairman until May and remain as strategic adviser to the CEO and as a non-officer employee through Jan. 5, 2009.

Zander will be entitled to a $5.3 million bonus, deferred from when he joined, and to all options and restricted stock units that vest or settle before his Jan. 5, 2009 retirement. He will not receive a severance payment as he is stepping down and will forfeit any unvested equity, Motorola said.

Some analysts wondered if the timing of the changes suggested Motorola's phone sales were flagging, since they had thought the third-quarter profit bought Zander more time.

Citigroup analyst Jim Suva questioned in a note to clients if it "signals yet another disappointment for the handset segment and more meaningful changes that have to occur. ... We believe Motorola's handset division is still struggling."

Some saw Brown as crucial to improvements and a sign Motorola intends to remain independent. The company's finance chief and mobile devices head both left this year.

"Getting Greg Brown is to improve execution. The company has lacked execution," said analyst Bill Choi of Jefferies & Co. "There have always been rumors of Motorola being bought out, and this signals its intent to remain a stand-alone company."

One investor said the news did not appear to signal real change. "To me he's an unknown and an insider," said Shawn Campbell, principal at Campbell Asset Management, a roughly $100 million fund that includes Motorola shares.

"For the foreseeable future it probably doesn't mean anything different," he added. "Motorola is really kind of a career killer. It's just a perennial disappointer." (Additional reporting by Franklin Paul and Ritsuko Ando in New York and Jim Finkle in Boston; Editing by Brian Moss and Andre Grenon)