Motorola Mobility, the mobile- phone maker that’s being spun off from Motorola today, won’t just need to challenge Apple and Research In Motion to succeed. It also needs to defy history.
No mobile-phone maker has returned to the top after losing its foothold, underscoring how competitive the industry is and how quickly customer tastes change. Motorola’s handset business, No. 2 globally as recently as 2007, has fallen to seventh, according to researcher Gartner, and is now separating from the rest of the company in a bid to recover.
“This is a business where comebacks are very hard to achieve,” said Tero Kuittinen, an analyst with MKM Partners LP in Stamford, Connecticut, who has covered the industry for 13 years. “Rapid product evolution tends to leave old champs permanently behind the new vanguard.”
Motorola Mobility Chief Executive Officer Sanjay Jha is banking on continued demand for phones built on Google’s Android software to win users from Apple’s iPhone and RIM’s BlackBerry. He also needs to persuade consumers to choose Motorola’s handsets over Android phones made by HTC and Samsung Electronics.
Motorola Mobility, based in the Chicago suburb of Libertyville, will begin trading today under the ticker MMI on the New York Stock Exchange. Motorola Solutions Inc., formed from the company’s remaining two-way radio and scanning- equipment businesses, begins trading as MSI.
Profitability
The industry’s former top competitors that succumbed to faster-moving rivals include Ericsson AB, Palm, Siemens AG and Alcatel SA. Ericsson, which competed with Motorola and Nokia Oyj in the top 3 throughout the 1990s, combined its phone unit with that of Sony Corp. in 2001 to help regain lost market share. The venture now ranks sixth, according to Gartner.
Siemens and Alcatel, both in the top five a decade ago, never recovered from market-share losses and ended up selling or giving their mobile-phone businesses to Asian rivals.
Motorola may not need to return to the top five to be “solidly profitable” this year, as long as it manages its smartphone business well, Kuittinen said. Sony Ericsson was able to return to profitability with relatively low unit sales in just a few markets, and Motorola can do the same, he said.
To complement its North American business, Motorola has a foothold in Latin America, where smartphone sales are growing faster than in the US, he said. To exceed investors’ expectations this year, Motorola also needs to make progress in Asia, he said. Kuittinen rated Motorola “buy” and doesn’t yet have a rating for Motorola Mobility.
Verizon’s iPhone challenge
Jha, 47, joined Motorola from chipmaker Qualcomm in 2008, charged with reversing a two-year sales slump. He has narrowed the phone unit’s losses by cutting the variety of basic talk-and-text phones in Motorola’s portfolio and focusing on a smaller range of smartphones based on Android.
Still, he is playing down the prospects of a sudden improvement in performance. The mobile-phone unit probably won’t make any money in the first quarter as the competition for the attention of Verizon Wireless, the largest US mobile carrier, increases, he said last month. The unit had a third-quarter profit, excluding some costs, after three years of losses.
Verizon Wireless will probably start offering the iPhone to its customers this year, people familiar with the company’s plans said last year. Verizon is the main carrier for Motorola’s Droid phone.
