May 8, 2007 11:50 AM PDT

What's next for Motorola?

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After the phone became available on all four major cellular networks in the U.S. and the company cut prices, its margins for the fourth quarter of 2006 plummeted. Since then, Motorola hasn't found a high-end handset to replace the Razr and boost revenue and profit margins. Sales of the new Krzr and Rizr phones have largely been disappointments compared with the success of the Razr.

"Motorola's current product offering has been commoditized," Swanson said. "Pricing collapsed and there weren't any new, innovative phones to take up the slack."

As Motorola tries to develop a strategy to regain profitability, it will likely face stiff competition. Ultra-thin mobile phones are now common in most companies' mobile phone portfolios. What's more, Samsung and LG have beaten Motorola to the 3G party with thin phones that operate on next-generation wireless networks.

At the CTIA trade show in Orlando, Fla., earlier this year, Samsung and LG Electronics introduced several thin phones that can be used on 3G networks. Samsung debuted the r510 and the SGH-A727, two ultra-thin candy bar-style phones. It also introduced the Samsung Ultra Edition U600 quad-band slider phone. And LG showed off its ultra-thin flip phone called the LG VX-8700, which also supports 3G.

Meanwhile, Motorola will also soon face competition from a company with no cell phone expertise. Apple is expected to release its new iPhone in early June. That phone, which will be available only through AT&T's Cingular Wireless, is already attracting a great deal of attention.

Motorola is banking on a new generation of 3G-compatible handsets that feature advanced music and video capabilities to help spur growth in the future.

Still, analysts say it will take some time for the new devices to make their way onto the market. Bill Choi, an analyst at Jefferies & Co., said in a research note sent to investors Tuesday that he believes the company will start to see improvements in its handset business in the second half of the year, with sales returning to the $7 billion level in the fourth quarter.

But Choi said he doesn't expect any game-changing devices to come onto the market until 2008. Many of the new devices for 2007 are simply 3G variants of the company's existing products, such as the Razr. Zander said at the shareholders meeting that the company will show off new 3G and Java phones May 15.

While Zander has blamed the company's lack of 3G devices as one of the reasons for weak sales, Choi said he doesn't think 3G alone is enough to turn the tide for the company.

"The company has stressed its focus on 3G/WCDMA devices, but we do not see this as a differentiating factor from its competitors," Choi said in the research note.

Swanson agreed it will take some time before Motorola can get significant new products in the pipeline, but he said this is to be expected.

"The handset market is cyclical," he said. "The company just needs to find a way to smooth out those cycles to continuously produce new products that people are willing to pay for."

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5 comments

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RAZR software stinks.
I bought a RAZR used when my Sony Ericson died. It's a good phone but I'm really dissappointed with the interface. It's just clunky and less functional compared to my SONY. Can't sync via bluetooth. Sony's software is just slicker. Also it seems like the hardware has more power. The RAZR does have good predictive text though.
Posted by stopher2475 (21 comments )
Reply Link Flag
RAZR does stink, but you're being screwed by Verizon.
I have a Razr, and I hate it. The software is buggy. It drops the
connection to the headset randomly, and sometimes it thinks
the battery is 'invalid.'

The Razr can however, sync via bluetooth. I do it all the time,
but I don't have Verizon. They hobble all of their phones so that
you have to use their VCast 'service' to transfer files and
calendar information. Put a song on your phone? They charge
more than the iTunes $0.99 per song AND they charge you for
the air time to download it!
Posted by Macsaresafer (802 comments )
Link Flag
cannot agree more - UI is as unintuitive as it could be
i have the same problem. I normally use Sony Ericsson phones but
was forced to get a motorola since it's the only 3g phone for
Cingular frequencies. Actually there is an LG phone but LG is years
away from understanding what cell phone UI is and what
functionality it should have. In any case razr ui is super unintuitive
and clumsy. It is also full of bugs. I wish motorola just copied Sony
Ericsson ui.
Posted by jacobdol (10 comments )
Link Flag
just like
"Meanwhile, Motorola will also soon face competition from a
company with no cell phone expertise. Apple is expected to release
its new iPhone in early June. That phone, which will be available
only through AT&T's Cingular Wireless, is already attracting a great
deal of attention."

NO CELL PHONE EXPERIENCE, just like the iPod-no mp3 player
experiencee. sometimes no experience is a good thing!
Posted by Ian Kirkland (48 comments )
Reply Link Flag
Software tightly coupled with Hardware
Seems like Motorola should begin developing applications/server side services that work great on their phones. This is their problem. Sure hardware form factor has been the big seller for the last few years and what they did with the razor was similar to what Apple was able to achieve with the ipod, but they didn't build itunes, and an ongoing franchise in anything other than all the spin-offs of the razor. I am not saying they need a music hub (too late), but something equivalent. Every US carrier needs to differentiate, and Motorola could help them, but there doesn't seem to be much effort on Motorola's part, or maybe it is the carriers? This may be outside their core competency, but to survive they will need more than hardware.
Posted by gniz (4 comments )
Reply Link Flag
 

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