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Motorola tries its luck on smart phones

Posted: 09 Nov 2009 ?? ?Print Version ?Bookmark and Share

Keywords:Motorola strategy? smart phone? handset market?

Motorola Inc.'s history in the handset market should be enough warning for Sanjay Jha, but all indications are that the co-CEO of the company is executing a strategy fraught with danger and likely to repeat mistakes made by previous management at the American electronics icon.

One year after joining the company from Qualcomm Corp., Jha has whittled down operating costs in the mobile devices division and recently unveiled the company's flagship product, the Droid, a so-called smart phone that aims to take on Apple Inc.'s hot-selling iPhone and a bunch of other similar devices from the likes of Nokia, Samsung and Sony-Ericsson.

Jha is betting Motorola mobile's future on smart phones supported by other cellular devices he describes as "feature phones," or less technology and software rich products targeted at price conscious customers in the developed countries and consumers in less affluent parts of the world who use phones primarily for basic voice and text communication.

"Smart phone success for us in 2010 will drive, almost singularly, our financial performance in 2010," Jha said during a conference call to discuss the company's Q3 results. "Throughout next year, we will continue to shift our product mix as we focus on addressing the smart phone opportunity and reduce our reliance on feature phones. Our smart phone traction is the quickest driver of our financial performance."

In other words, the company's mobile division's future, as envisaged by Jha, will be determined by how successful it is in selling primarily smart phones. Feature phones will be less prominent in the company's product lineup because "there's not a huge amount of profit pool in feature phones, especially in emerging marketplaces," according to Jha.

Smart phones, on the other hand, have higher average selling prices and have the potential to lift margins at Motorola mobile devices.

This strategy is reminiscent of the Motorola Jha was recruited to rescue. In the earlier part of this decade, Motorola came out with phones like the Razorand before that the StarTac in 1996which had runaway success and propelled the company to a 22 percent market share by 2006, raising sales in the mobile division to a record $28.4 billion with shipment of 217 million handsets.

Many analysts since then have blamed Motorola's precipitous drop from the top ranks of the world's handset manufacturers on the company's strategy of occasionally rolling out super-phones like the Razor that initially receive enthusiastic response from consumersdriving up sales temporarilyonly to burn out as buyers move on to competing devices from rivals.

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