Is Motorola’s handset business dead?

4 02 2009
A true icon

A true icon

Motorola has announced its financial results for 4Q08, and the headline figure of a $3.58 billion loss for the quarter is not a good look.
Motorola has lost most of its market share, its shipments fell over 50% year-on-year, it’s haemorrhaging cash and its recent product launches have proved underwhelming.
Co-CEO Sanjay Jha has stated that the company will focus on mid-range and high-end handsets, after deciding not to spin the handset division off into a separate company. Why is Motorola in such dire trouble, and is this the correct strategy to save the company?

Not enough innovation

Motorola has made some of the most iconic and successful handsets in the short history of mobile telephony, including the StarTac and the RAZR, which sold a metric shitload. There is no doubt that Moto once had the talent and vision to produce great products, but it seems that for the last few years the company has beenĀ  unable to keep up with the rest of the industry in terms of innovation.
Moto’s software became slow and unintuitive, its handsets lacked the cutting edge hardware features of Nokia and Sony-Ericsson in Europe, or RIM and Apple in North America. Its industrial design became stale, relying for too long on the RAZR look and feel long after the rest of the industry had moved on. Motorola customers moved on to more intuitive and better-looking handsets from competitors, usually with features such as better cameras or music players (Sony Ericsson), better software and reliability (Nokia), better email (BlackBerry), more cool factor and better UI (Apple) or lower price (LG, Samsung).
More to the point, Moto’s new handsets too often just look stale, pumping up ‘features’ that were fresh on its competitors’ devices 18 months ago – an eternity in mobile phone terms.

New strategy is high-risk

According to the FT, “Mr Jha… said Motorola would focus on expanding the data capabilities of mid-tier handsets costing between $100 and $200, and on the market for high-end smartphones.”

I think this is a risky strategy for Motorola, for the following reasons:

  • The high-end of the market is saturated and has intense competition. The fiercest competition in the market is for high-end “smartphones”, with intense jostling between the heavyweights Nokia, Apple, RIM and to a lesser extent HTC, Sony Ericsson and perhaps a resurgent Palm. Motorola’s reputation in this space has taken a beating, and although it plans to release phones based on the Android platform (which I think is the right option for Moto), they will not come to market until late 2009 at the earliest. Moto is already late to the market, and I’m skeptical as to whether it will ever catch up, because its competitors certainly aren’t standing still.
  • The global recession will flatten sales of high-end devices. The timing is awful to be pushing aggressively into the high end, as people cut back on extravagant spending. Motorola needs the cheapest Android devices they can build, and as quickly as possible. The end of 2009 might not be quick enough, if Motorola continues to bleed.
  • Moto would do better to push hard into offering lower-specced handsets with more advanced software and data features. Jha mentioned this in his results call, and I think the opportunity for cheaper handsets with better data capabilities is massive – but Android needs a certain level of hardware grunt, and probably will not run well on cheap hardware. Moto has shown few signs of having a solid back-up platform that can run data-intensive apps on low-end hardware (nothing to compete in features and ease-of-use with Nokia’s Series 40, for example), and it takes time to develop a platform like this.
  • Most global handset sales growth will come in emerging markets. Pulling out of low-end devices means that Moto will have more difficulty reaching serious volumes. This strategy is fine for Apple, which commands market- and mind-share in many developed markets and can sell iPhones at a premium, but Motorola has neither of these advantages, and should be looking for rapid growth wherever it can find it. High-end Android phones and mid-range phones with Facebook aren’t really going to fly off the shelves in India, China, Africa and Latin America.

How much cash and morale are left?

Motorola’s handset division has been steadily losing cash for several quarters, and thousands of staff have been sacked. Those remaining must feel like death row inmates, and many of the talented ones will surely be seeking opportunities elsewhere before the axe falls. How long can Motorola continue to bleed, before it collapses? Hopefully it has enough time to bring its plans to market and save an iconic brand, but hope doesn’t save companies.