Motorola's Turnaround May Need More Than Just A Google Phone
July 30 2009 - 2:28PM
Dow Jones News
Motorola Inc. (MOT), unlike some of its investors, isn't banking
on its first Android-powered smartphones to turn around the
company's fortunes.
The Schaumburg, Ill., company's stock has run up on the hope
that the devices, armed with Google Inc.'s (GOOG) flashier mobile
operating system, will reinvigorate Motorola's sullied brand. But
Co-Chief Executive Sanjay Jha doesn't see the company's fate
hinging on a potential holiday blockbuster. While he may just be
clamping down on expectations before they get out of hand, his
thinking suggests the turnaround may be more drawn out than some
expect.
"My purpose is to get back in the game and build upon it," Jha
said in an interview. "While I'm hoping it's a home run, we're not
banking our financial results on it."
Wall Street has given a free pass to Motorola's fundamentals
until the devices hit the market in the fourth quarter. Shares have
more than doubled since March despite deteriorating handset sales
and a continued loss in market share. The stock is up 8.7% Thursday
to $7.14.
Motorola is on track to release two Android phones through two
U.S. carriers, believed to be Verizon Wireless and T-Mobile USA,
before the holiday selling season.
Nonetheless, Motorola faces an uphill struggle, not unlike Palm
Inc. (PALM), which put its fate into the success of its Pre
smartphone. In that case, the buzz-worthy device and Palm's new
WebOS software have made the company relevant again.
Motorola, however, is a larger and less-nimble company with a
higher cost structure. It hasn't had a hit phone since the
ultra-slim Razr, which is nearly a decade old. Unless one of its
devices sees success like Apple Inc.'s (AAPL) iPhone, it won't
significantly turn the ship around.
With the latest iPhone 3GS and the Pre, along with a number of
other smartphones, on the market, it's a tough environment for any
new entrant. Motorola isn't even the first to use Android. HTC
Corp. (2498.TW) is more than a year ahead with the G1 and Touch,
and already enjoys strong marketing support from T-Mobile USA.
With so many smartphones competing for attention during the
holidays, it may come down to price, and not features, UBS analyst
Maynard Um said.
Barclays Capital analyst Jeff Kvaal warned that aside from the
new iPhone, the recent smartphone launches have been at best
in-line with expectations or slightly disappointing.
The latest trend for a handset maker is to position its products
as a "hero" phone, which receives the optimal marketing push by a
carrier. AT&T Inc. (T) has the iPhone, Verizon Wireless has the
Blackberry Storm, and Sprint Nextel Corp. (S) has the Pre. With so
many devices angling for attention, it's hard to see how Motorola
nabs one of those coveted positions.
Jha said he would push for more carrier support but declined to
comment on how Motorola's products would be positioned.
"I will let the carriers make the call," he said. "They're
capable of being a hero device."
Acknowledging the competition, he instead pointed to the
importance of the pending portfolio of devices using Android,
rather than these first two devices. Motorola plans to have
multiple Android devices next year addressing the low- and high-end
smartphone market.
While having multiple devices on different carriers is a smart
way to diversify the business, it may not be the shot in the arm
that many investors are envisioning.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153;
roger.cheng@dowjones.com