Motorola's struggle for survival
The iconic American technology company Motorola is in big trouble. But can a last ditch effort by a new top executive help the company pull one of the biggest comebacks in American business history?
That's the question that everyone is asking after Motorola broke the bad news on its quarterly conference call Thursday that the handset business, which has been in serious trouble for more than two years, will likely not make a turnaround until early 2010. The problems are so grave at the company, which reported huge losses for the third quarter, that Motorola is delaying its planned spin-off of the handset division and restructuring the entire business in the hope that it can finally create products that will excite consumers.
Is Sanjay Jha the man to turn around Motorola's handset business?
(Credit: Motorola)As the world economy tumbles toward recession and competitors like Apple and Research In Motion continue to pump out hot new products, Motorola's fight to survive will be an uphill battle. But recoveries do happen. Other companies have risen from their deathbeds. And now with the help of its new star co-CEO Sanjay Jha, Motorola hopes it can add its name to the list of companies that have risen from the ashes.
"We're either witnessing a slow death here, or the darkest night before the dawn," said Sam Wilson, senior analyst at JMP Securities. "But one thing is clear this is a company royally screwed up in a brutally competitive market. And it won't be easy to turn things around."
Motorola invented the cell phone market some 35 years ago when its engineers demonstrated the very first mobile phone call using a device developed by Motorola. A decade later, after services were built, it was the first manufacturer to commercially sell its cell phone, nicknamed the "Brick." And while the Motorola cell phone is what helped the company make its brand a recognizable name throughout the world, it's also what could eventually destroy it.
Motorola's fundamental problem today is that the company has not had a hit phone since it introduced the ultra thin Razr in 2004. But even worse than not having a hit phone, the company seems to have entirely missed a significant paradigm shift in the handset market. Consumers are moving away from traditional feature-based cell phones, such as the Razr, and they are moving toward more sophisticated smartphones, like the iPhone.
Motorola hasn't ignored the smartphone market entirely. It has introduced a handful of Windows Mobile phones including the Motorola Q. But new competitors, such as Apple with the iPhone and Research in Motion with the BlackBerry, have clearly stolen the show and garnered much of the attention in the smartphone category.
"The market essentially moved without them," Wilson said. "There is very little growth left in the standard feature phone market. And when you think of a smartphone, you think iPhone or BlackBerry. You don't think Motorola Q."
Meanwhile, Motorola's traditional competitors have gotten stronger. Nokia has widened its worldwide market share lead. And Samsung has replaced Motorola as the No. 2 handset maker in the world. Now LG is close on Motorola's heals and could bump the company to fourth place.
Betting on Windows Mobile and Google's Android
In an effort to breathe new life into its handset line up, Motorola is betting the farm on two mobile operating systems: Windows Mobile and Google's Android.
Co-CEO Jha, who was hired in August to take over the handset business and help spin it into its own company, said on the company's earnings call that Motorola will dump at least four operating systems, including Symbian, to focus on developing products using Android and Windows Mobile. Mid-tier phones will run Android, while the company will use Windows Mobile for its high-end smartphones.
The problem for Motorola is that it will take time to make this transition. Jha said he doesn't expect an Android phone on the market until the 2009 holiday season.
By that time, Apple and RIM will likely have introduced new products to the market too. But more importantly, Motorola will have to ensure whatever phone it brings to market is a hit. And that is not easy to do, especially given the fact that the company is counting on two operating systems that are already being used by other phone manufacturers.
HTC has already introduced its first Android phone, the G1, which is currently being sold by T-Mobile. And HTC along with a slew of other players like Samsung and LG are already selling several phones using Windows Mobile.
"It's really hard to go into the smartphone market using a third party operating system," said Tavis McCourt, an equity analyst with Morgan Keegan & Co. "It just means that pretty much any phone manufacturer can come out with a product that looks and feels like yours."
Indeed, Apple and RIM, two of the most successful smartphone makers in the market, use their own proprietary operating systems on their devices.
But even though Motorola's prospects for success may look bleak, it may be too early to write its obituary. For one, other than the handset business, Motorola is a strong company. Its home networking, mobility, and enterprise businesses are doing very well.
What's more other companies have also recovered from their deathbeds. For example, Apple, which is a huge threat to Motorola today, was in a similarly dismal place a decade ago. Steve Jobs, Apple's founder who had been ousted in 1985, returned to take the CEO spot at the company in 1997 when it looked like little could be done to save the computer company. Within a few years that changed, and Apple began selling the iPod. The device was by no means the first digital music player on the market and some would argue it wasn't even the best portable digital music player to hit the market. But it created a sensation and helped save the company.
While turn-arounds are not impossible, they're never easy. Just like with Apple's recovery, leadership will be a critical element in Motorola's comeback. It's clear that a lack of leadership and clear vision for the handset business has hurt the company over the past year. Jha, who was hired in August to take over the handset business, had been a top executive at Qualcomm where he worked for 14 years. While at Qualcomm he ran the company's CDMA division. His deep operations experience and knowledge of the cell phone industry should help in his job with Motorola.
But even with good leadership Motorola's battle for survival will likely be made more difficult by the current state of the world economy. In anticipation of harder times ahead, Motorola has postponed the planned spin-off of the handset division into its own company. Earlier this year, Motorola said the split would be finalized in the third quarter of 2009. Now it's looking like 2010 could be the earliest that the Motorola handset division becomes its own company.
And as spending in the consumer market tightens, Jha announced during the call that the handset division will cut $600 million in costs next year, as part of an overall $800 million budget cut. This will include cutting an additional 3,000 workers from the Motorola payroll, two-thirds of which are expected to come from the handset division.
The company is also scaling back its sales efforts in Europe and parts of Asia, where it has had relatively low market penetration. Instead, it will focus on stronger markets, such as the North America and Latin America.
But JMP Securities analyst Sam Wilson warns Motorola to balance its cuts with increased spending in some areas.
"On the one hand they're pulling for the fire escape and with the other their trying to innovate," he said. "You can't cut your way to prosperity. You still have to invest in the business to create products people want to buy."
Marguerite Reardon has been a CNET News reporter since 2004, covering cell phone services, broadband, citywide Wi-Fi, the Net neutrality debate, as well as the ongoing consolidation of the phone companies. E-mail Maggie. 
Anyway, Moto has some significant challenges ahead. They have some great technology and build some very solid phones. The Razr V3M I have as a personal phone survived a full wash cycle and half a dry cycle at the laundromat before I was smart enough to figure out that driers are not supposed to go "kaTHUNK kaTHUNK kaTHUNK." The phone still works and in many ways is a better phone than many of the smartphones that I get to play with as Demo Tsar at InnoPath (fun job, BTW). However, it is time for them to move on and I reckon that Android is probably a good way to do it but not an entirely risk free path.
A more risk free path would be to do Symbian/S60 and in ways it would have been easier to understand ditching UIQ for S60 for the UI but I am not driving that bus...
Back to Android, from what I have seen on my TMobile G1, Android is a damn fine stack. The G1 is a nice, responsive phone. The UI, while not perfect, is in ways more intuitive than things like Symbian/S60 as one might find on many Nokia devices. For the most part, the UI looks nice - slick/professional. There are some rough edges, particularly with regards to exactly how the touch screen behaves, but for a first phone on a new platform it really is pretty good and I suspect with the big dogs like Moto jumping into the pool that things will only get better. I just hope that someone figures out that regardless of religion that it really would be nice to have ActiveSync (so you can hook up the phone to your corporate Exchange Server) and Office support on a device, which would then start to be pretty compelling in corporate land.
This CNET article reveals their upcoming strategy to use Android on their low end smartphones and Windows Mobile on the better ones. Another misstep in my opinion. I never thought I would buy into the network-centric app idea - but slowly almost all of my personal data has migrated online. I use Google and their apps for everything nowadays, and I can't wait to take it with me (via Android). What other company provides such a tightly integrated productivity suite, along with all your data, that goes anywhere the network goes. (For free.) So for Motorola to relegate their Android phones to the lower tier just boggles me. I haven't bought the HTC G1 because it's not the hardware I want. Will anyone come out with a super duper $400 G-handset that does everything? I will avoid Microsoft-powered anything, at all costs.
If Google can one-off a quality handset (rumored) and HTC makes quality stuff (the Dream is quality, just not what I want) Motorola should be able to do the same. Contrary to industry-think, I think using a third party OS will be great for the handset market. Instead of being limited in software quality and functionality (e.g. LG NV2), these handset makers can begin looking at what people are doing with their phones... and design accordingly.
Motorola on the other hand has been used to making products that take years to develop, years to bring to market and once they go on sale, they stay there dominating for years. Competing in the modern phone arena is just going to be a disaster for them.
They DO still make really good two-way radios which do indeed dominate the market and it's one area where the company still has the luxury of long-term product development cycles and it's also very profitable for the company. Everybody else making two-way uses Motorola gear as the benchmark and most of them fail to hit it. Moto simply owns it.
What they may have to do is just bail out of the handset war, focus on two-way and IC and patents and yes, end up being a much smaller company.
That said, I do think it's a great idea to run with Android. Moto has never been any good at UI, not even on their two-way software. RSS was clearly designed for engineers by engineers. Using Android may let others shoulder the burden of making the phones usable.
The other part will be harder, compete with the amount of application already at Apple Store. Is amazing how much have been done in so little time.
At the end , companies competing against the iphone, will not be able to do it alone.
For the other part, they deserve to be were they are. For years we have been force fed, stupid phones with windows mobile. Windows mobile is pure junk just like many other MS products. With the iphone, we can know do (almost) all we want with our phones.
Companies shouldn't be afraid to copy and improve on existing products. I'm holding thumbs and hoping that my next phone which is going to be a Windows Mobile 7 phone will be a Motorola device.
If Motorola wants to remain a successful company in the handset market and wants to remain one of the big players, they better get to INNOVATING some new products soon and stop trying to be one of these "ME TOO" companies that will all be left behind.
The multicore crisis is an unprecedented opportunity for troubled companies like Motorola and others to leapfrog over their competitors and make a killing. There is a good way and a bad way to do it. Click on the following link to find out more:
How to Solve the Parallel Programming Crisis:
http://rebelscience.blogspot.com/2008/07/how-to-solve-parallel-programming.html
I agree other biz units of Mot are strong market players. They have known for a few years now that they were too slow to compete and needed to get out BUT when you are talking about a market that represents the highest volumes of ANYTHING electronic, and they have to displace their sales of handsets with something else(and quick!!) it becomes too difficult to pull the trigger! At best they will partner or bail but they need to do it NOW!
- by AlexRoz November 24, 2008 3:33 PM PST
- With all due respect for Mr. Jha, hiring a new "co-CEO" is like trying to sprinkle a "magic powder" to fertilize dry soil to start growing crops.
- Like this Reply to this comment
-
(12 Comments)Motorola (and others) must completely reform its management structure and the board. Studying successful corporations elsewhere may yield some clues. Sony's and Nokia's do not pay millions to their executives, do not appoint retired CEO's from unrelated industries to their boards and do allow employees to have a real voice in how the corporation should be run.
Perhaps there is something to be learned from them...