Motorola's uphill fight for survival
Published: 31 Oct 2008 14:58 GMT
...that whichever phone it brings to market is a hit. And that is not easy to do, especially given the fact 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 such as 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 although Motorola's prospects for success may look bleak, it may be too early to write its obituary. Other than its 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 chief executive spot at the company in 1997 when it looked like little could be done to save the 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, but it created a sensation and helped save the company.
While turnarounds are not impossible, they're never easy. Just as it was 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."
Credit: Motorola's struggle for survival from CNET News
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