It wasn’t too long ago that that Motorola Inc.’s RAZR was the industry’s best-selling device, those “Hello Moto” commercials were ubiquitous and the company was No. 2 in the global cell phone market. Now, such heady times seem far away as the company mulls the spin-off of its device division, having lost 50 percent of its market share in the unit that once accounted for 50 percent of its overall revenue. The question is, will a spin-off actually help Motorola’s handset business turn around? Some analysts are expecting a death knell instead, or a fate as a Tier 2 vendor.
Industry watchers agree on one thing: One can’t blame the recession for Motorola’s reversal of fortune. It’s a simple case of not delivering compelling devices that can compete in the world of the iPhone, touchscreens and real Internet browsing. And the company relied on the RAZR for far too long. "Motorola is not one of those companies that can blame its woes on the economy," Roger Entner, an industry analyst with Nielsen, told the New York Times. "It's purely self-inflicted."
Caroline Gabriel at Rethink Research agrees: “With no credible smartphones to offer in the most resilient part of the market, Motorola is not really competing head-to-head with the rest of the big four, and certainly not with the smartphone specialists RIM, Palm and Apple,” she said.
Turnaround Plan
Co-CEOs Sanjay Jha and Greg Brown said last week during its earnings call that Motorola remains committed to selling off the handset division, which now accounts for just a third of the company’s overall revenue.
It’s a drag on the combined entity, clearly: In the fourth quarter of 2008, the vendor was forced to cut 3,000 jobs. In the first quarter of 2009, Motorola saw a 46 percent drop in shipments year-over-year for the quarter, while sales were down 32 percent year-over-year, falling to $1.8 billion. Motorola is now fourth place in the market, behind Nokia, Samsung and LG.
The salvaging process includes making the unit a standalone enterprise to give Motorola’s other divisions – enterprise and home networks – room to grow without the handset drag, even though both of those divisions share a common R&D base and a heavy handheld device component within their strategies.
Meanwhile, the device unit also will try to catch up with a plan to deliver “meaningful products,” Jha said, by paring down the number of devices it has and embracing Google’s high-performance, low overhead Android as the primary operating system for its consumer-facing devices. New Windows Mobile devices for business users also will be a priority.
The problem is that the first of those devices will be arriving late in the year: “We remain on track to having Android devices in the fourth quarter, for the holiday season,” Jha reiterated. With the upcoming release of the Palm Pre, more Android devices from other vendors and the iPhone 3.0 operating system upgrade due next month, it might be too late for Motorola to regain its relevancy.
"They're stuck heavily in the handset death spiral," Edward Snyder, an analyst with Charter Equity Research, told the Times. "If they have tens of billions of dollars they want to pour into this black hole, they might be able to save it. Even then, there are no guarantees."
