Cell phone subscribers in the U.S. are spending more on their wireless handsets, another sign that the smartphone revolution has arrived.
On average cell phone subscribers are spending about $101 on new devices. This is $9 more than they spent on handsets just six months ago, according to a J.D. Power and Associates survey released Thursday. This is the first substantial increase in the average sale price of mobile devices in two years, the consumer survey company said.
What's driving this price jump? Smartphones and other feature-packed phones. Devices, such as Research In Motion's BlackBerry and Apple's iPhone, as well as music-enabled phones are gaining popularity. In fact, J.D. Power reports that smartphones make up about 6.3 percent of all cell phones sold today, compared to the beginning of 2007 when they made up only 1.7 percent of the market. Other market researchers have also noted a surge in smartphone growth. And because these phones typically cost more, they are boosting the overall average sale price. On average smartphones, which allow Internet browsing and a slew of other features, sell for about $208 while regular phones sell on average for about $58.
"As more customers start to upgrade to mobile phones that offer real-time connectivity and access to Internet content--particularly those offered by smartphone devices--we should continue to see the wireless handset price point rise," Kirk Parsons, senior director of wireless services at J.D. Power and Associate.
Another indication that smartphones are impacting the market is the fact that fewer U.S. cell phone subscribers are getting their phones free from carriers. The percentage of customers who say they received a free handset has decreased from 36 percent to 33 percent during the past six months. Carriers typically have offered discounts on some smartphones, but they have not given them away for free.
Cell phone users also reported that they are keeping their phones longer. The average reported length of cell phone ownership is 17.7 months. This is up from 16.6 months in 2006. One main reason driving this trend is that as more consumers invest in more expensive devices like smartphones, they expect to keep them longer. A sagging economy could stretch this length of time even further over the next six months.
The study also revealed that more than 40 percent of respondents said style and design were the most important factors in selecting their phone. Only 25 percent said they chose their current phone because it was offered free. And 21 percent said they bought their phone because it was discounted. Only 17 percent bought a phone because of its variety of features and small size.
Sony Ericsson, which makes the Walkman music phones, ranked the highest in terms of customer satisfaction as part of the survey. LG Electronics came in second. Nokia, the worldwide leader in handset sales, still has much work to do in satisfying customers in the U.S. The company ranked near the bottom in terms of overall satisfaction.
Motorola's executive management shakeup continues as the company replaces two more senior executives.
The company has replaced treasurer Steve Strobel with Larry R. Raymond, a former vice president and treasurer at Sears Roebuck. Strobel had most recently been working for a private equity firm.
Motorola also replaced Mike Fenger, who had been the head of mobile devices in Europe, the Middle East, and Africa. Stephen Nolan, formerly vice president of sales at Motorola for Continental Europe, will now be in charge of the EMEA region.
The changes at the top are all part of Motorola's plan to transform its leadership team and move forward, a company spokeswoman told The Wall Street Journal.
Motorola's handset business, which makes up the bulk of the company's revenue, has experienced heavy losses over the past several quarters. The company hasn't had a hit phone since its popular ultra-thin Razr. And it's been losing market share while other companies such as Nokia and Samsung have gained market share.
Amid sharp criticism from investors, the company's board of directors forced the resignation of CEO Ed Zander and replaced him with Greg Brown.
Since taking over as CEO, Brown has been shaking up the executive suite. Several top executives have left the company, including the CFO, head of marketing, and the president of Motorola's Mobile Device unit.
Soon after Brown took over, Motorola announced that it was considering splitting off the mobile device unit from the rest of the company in an effort to return value to shareholders. Brown told reporters in February at the GSMA Mobile World Congress in Barcelona that he was fully committed to the mobile handset business.
Reuters reported last week that cell phone manufacturers in Asia have expressed interest in working with Motorola's handset business. Chinese mobile phone maker ZTE was supposedly in talks with Motorola last month over a partnership, Reuters said. Xiong Hui, marketing vice president for handsets at ZTE, told Reuters during an interview at the Mobile World Congress in February that it had been "keeping in touch with Motorola on a wider cooperation."
Motorola reported a second-quarter loss when it announced earnings Thursday, as sales of wireless handsets dropped by about 40 percent.
The company has some new products in the pipeline that should boost sales in the next two quarters, but executives still don't think the company's handset business will turn a profit in 2007.
Motorola reported it had lost $28 million, or 1 cent a share, compared with net income of $1.38 million, or 55 cents a share, in the same quarter a year earlier. Revenue was down 19 percent to $8.73 billion from $10.82 billion a year earlier.
The news of Motorola's earnings shortfall had been expected. The company issued a profit warning last week. But now the big question is how quickly can Motorola get its mojo back?
The past several quarters have been huge disappointments as the company's product offering has stagnated. And in an effort to reach profitability, the company has resisted price cuts, which has caused it to lose market share, especially in important markets like Asia and Europe.
Motorola has held the No. 2 spot in terms of worldwide market share for mobile devices behind Nokia, but after this quarter, it's likely the company has slipped to third place behind Samsung Electronics.
Ed Zander, Motorola's CEO, is hoping that Motorola's repurposed handset portfolio, which includes 3G versions of the Razr and Motorola Q, will help boost sales. These phones went on sale this summer. But he also indicated on the call with analysts and investors that the company needs something new to "wow" consumers. And in an iPhone-crazy market, the company has its work cut out for it.
"It's all about the products," said Zander. "If you look at Q1 and Q2, we really didn't have many "wow" products. We really need to get new products out there."
He said he's encouraged by early sales of the new Q and Rockr phones in Asia, but he didn't want to overstate the impact.
Aside from the lack of any really cool, killer phones, Motorola appears to have two main problems in its handset division. For one, Motorola was late to the 3G market, which has hurt sales in Europe and Asia where 3G is thriving. But even though Motorola now has 3G devices to sell, the company is still vulnerable because it's at least a year behind its competitors in terms of design. This means that Motorola is going to have to scramble to reduce its cost structure in order to stay competitive with Nokia and Samsung.
The second problem is that Motorola has struggled to compete in the low end of the market, because it hasn't been able to keep costs down. This is a huge problem since many analysts predict that emerging markets like India and sub-Saharan Africa are likely to fuel much of the growth in handsets over the next several years.
Motorola's poor financial performance has put a lot of pressure on Zander. Many industry pundits wonder if the CEO's days are numbered. When asked during the conference call if the board of directors is still behind Motorola's management team, Zander would only say, "I think we are doing the right things. It's certainly been a difficult year for us. And the management team has been working really hard. That's all I can say."
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