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Correction at 8:15 a.m. PST: Due to an editing error, Motorola's standing in the handset industry was misstated. Motorola is the No. 3 handset maker worldwide.

Embattled Motorola CEO Ed Zander will resign from his post at the end of the year, the company announced Friday.

Greg Brown, Motorola's chief operating officer and president, will take over as the company's CEO. Brown was also appointed to the Motorola board in July.

Zander, who has struggled to right the cell phone maker and successfully fought off a proxy fight with billionaire investor Carl Icahn earlier this year, will continue as board chairman until the end of his term next year.

Ed Zander

(Credit: Motorola)

Motorola, the world's No. 3 cell phone maker, was on top of the market at the end of 2006 thanks to robust sales of its Razr handset series. But as the Razr became more widely available and its price dropped, the company failed to offer a strong follow-up, began losing ground to competitors, and lost its No. 2 spot to Samsung.

Motorola said Zander also will continue to serve out his employment contract as a strategic adviser to the CEO through January 5, 2009. In that capacity, he will not be an officer at the company. A former president of Sun Microsystems, Zander was brought in as Motorola CEO in early 2004 to replace Christopher Galvin, the grandson of the company's founder.

Update at 7:55 a.m. PST: "We are exceedingly fortunate to have a leader of Greg's caliber, vision and experience," Zander said in a statement. "He has been an invaluable partner and I am confident he is the right person to be the next CEO of Motorola and lead the company through its multiyear transformation. Next year marks my 40th year in the technology industry. This is the right time for me to move on to the next phase in my life and spend more time with my family."

Greg Brown

(Credit: Motorola)

Over the past year, Motorola has faced increasing competition and posted declining sales. Meanwhile, archrival and No. 1 handset maker Nokia has posted rising sales.

Motorola has undergone some management changes since the beginning of the year, when its chief financial officer retired and was replaced on an acting basis by Thomas Meredith, a board member from outside Motorola and the former chief financial officer for Dell.

In March, Brown was promoted to president and chief operating officer at Motorola, after having overseen four businesses areas at the company. Brown, who joined Motorola in 2003, handled the company's $3.9 billion acquisition of Symbol Technologies, the second largest transaction in the company's history.

In July, Motorola took the rather uncommon step in the corporate world of naming Brown to its board of directors. The CEO, and sometimes the chief financial officer, of Fortune 500 companies will sit on the company's board. But the No. 2 executive is not often part of the mix.

Ed Zander, listen up. Get your wallet ready and shareholder activist hat on.

Your arch nemesis, shareholder activist Carl Icahn, has sold his Icahn Funds, which he manages, to American Real Estate Partners, according to a Reuters report Thursday.

American Real Estate Partners is publicly traded, and Icahn holds a 90 percent stake in the company. So, with AREP purchasing Icahn's private investment funds, which have been vocal on those holdings it deems as poor performers--like Zander's company, Motorola--CEOs such as Zander may want to invest in AREP.

And what might these CEOs do if AREP's performance begins to tank? They could launch a proxy fight, much like Icahn did with Motorola, or initiate a campaign to withhold votes to re-elect AREP's directors and chairman. Icahn, by the way, has agreed to serve as AREP's chairman for five years and as CEO of the Icahn Management Entities.

While any efforts by CEOs to launch a proxy war with Icahn's AREP would be entertaining, in the end, it would be futile. The guy holds a controlling stake and isn't likely to vote himself off the board.

Especially, since they're renaming AREP as Icahn Enterprises.