Summary
Despite a legacy of global handset success, Motorola is struggling to survive in the competitive mobile phone business.
Analysis
While Motorola posted a profitable quarter, its latest handset results do not inspire confidence about a bright future. The company shipped 14.8 million units, nearly 50% less than the year-ago quarter, and a far cry from the dominance of just a few years ago. Cost cutting impacts are being seen but Motorola’s issues are more fundamental and difficult to reverse.
Motorola’s strength in handsets came in large part from the US market and innovative designs - recall the StarTac in the 1990s and the RAZR in mid-2000s. Motorola crossed the 100 million RAZR phones sold in 2007 but by then they had no meaningful follow up devices and were already into their current slide. The mobile phone industry has evolved even further since 2007, and now success is increasingly based on software, services and applications (in addition to hardware design and ergonomics), never considered Motorola’s strengths.
Gone are the days when Motorola was a strong #2 worldwide to Nokia with over 20% global market share. As competitors such as Apple, HTC and RIM have joined the fray in smartphones, and LG and Samsung have surpassed Motorola in worldwide volume, Motorola’s position has weakened without a turnaround in sight. Motorola needs a product and platform success to keep the handset business viable - cost cutting can only take the company so far.
Motorola has now linked much of its future in the mid-end and smartphone categories to its Google Android initiative. After several attempts at creating a viable handset technology and software platform, Motorola has committed significant resources toward Android. While Motorola is not the first company to commit to Android, they are the largest manufacturer to publicly adopt the Google mobile phone operating system.
In many ways Motorola’s handset fortunes will depend not only on its ability to bring innovative devices to market but also on Google’s success in fostering Android demand and usage. Ironically, several of Motorola’s competitors will have a significant say in the company’s success as they too are developing Android-based phones and looking to jumpstart the burgeoning Android marketplace.
Tal Raeside consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
