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Motorola gets wise to smartphones

Greg Brown, Motorola’s joint chief executive, offers a devastating critique of the company as he explains the calamitous decline of its mobile phone business.

Industry analysts point to Motorola’s unprofitable dash to increase market share in developing countries in 2006 and the failure to produce a mobile to match the popularity of its Razr handset.

But Mr Brown says Motorola did not spot quickly enough how mobiles were evolving from simple devices for making phone calls into sophisticated handsets for surfing the internet and sending e-mail.

The rising popularity of these smartphones has been driven by the advent of third generation mobile technology and Motorola has not thrived in 3G.

Mr Brown told the Financial Times that Motorola “didn’t see the trends coming in smartphone and 3G with the kind of foresight and customer attention that it should have”.

He goes on to describe Motorola’s failure to anticipate the growing importance of mobile software rather than handset design.

He also highlights the company’s botched attempt to develop a single operating system for its handsets based on Linux and Java software.

While its rivals have been striving for simplicity, Mr Brown says Motorola has been “rolling against the tide” by using several operating systems and chipset suppliers.

Add the deepening global recession to Motorola’s catalogue of failure and the company is reeling. “I think the majority of the challenges Motorola faces are our own doing,” says Mr Brown, who has worked at Motorola in several roles since 2003. “The economy exacerbates it but certainly didn’t cause it.”

Motorola was the world’s largest mobile maker in the 1990s until Finland’s Nokia stole that mantle in 1998.

In 2006, Motorola sold 217m mobiles after pushing to increase market share by selling cheap handsets priced at $50 or less in developing countries.

But the strategy had to be abandoned because it was unprofitable, and last year Motorola sold just 100m mobiles.

Motorola’s global market share of mobile sales has fallen from 23.3 per cent in the fourth quarter of 2006 to 6.5 per cent at the end of last year.

The company’s mobile devices unit reported an operating loss of $2.2bn for 2008, up from $1.2bn in 2007.

Given the unit is burning up cash, Motorola last month suspended its dividend. It had net cash of $3.3bn at December 31 but expects gross cash of $7.4bn to decline this year.

Mr Brown says the mobile unit’s deteriorating performance forced Motorola last year to delay plans to spin it off in 2009 from the rest of the company, which, among other things, makes wireless network infrastructure.

He declines to provide a new spin-off timetable but says board members representing Carl Icahn, the corporate raider who is pressing for the separation, supported the delay.

The turnround strategy for the mobile unit has been devised by Mr Brown and Sanjay Jha, the former Qualcomm chief operating officer who joined Motorola as joint chief executive last year.

The strategy involves transforming Motorola into a niche player in the mobile phone industry, both in terms of handsets and markets. It will concentrate on mid- to higher-priced mobiles, with sales efforts focused on the US, Latin America and China.

Motorola will use Google’s Android operating system for many of its new handsets although they will not go on sale until the fourth quarter of this year.

In the meantime, the turnround efforts are focused on cost-cutting, with Motorola seeking to reduce operating expenses at the mobile unit by $1.2bn this year.

About 5,000 jobs will go at the unit, which analysts estimate has 10,000 employees and a further 10,000 contractors. Mr Brown rejects suggestions that repeated rounds of cost reduction have left the unit unable to recover. But Mr Brown admits Motorola’s other businesses, including the mobile network infrastructure unit, will come under pressure in the recession.

These profitable businesses last year more than offset the operating losses at the mobile unit but the downturn could jeopardise that.

Nevertheless, Mr Brown rejects the case for closing the mobile unit.

At the Mobile World Congress in Barcelona last month, Mr Brown says mobile operators needed minimal reassurance about Motorola’s commitment to making handsets.

“I don’t think it’s a situation where they’re testing our oxygen levels,” he says.

Источник: Financial Times

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