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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?

As in the past, Motorola's Droid will most likely boost sales initially but the company's smart phone strategy is likely to result in more problems later for the communications equipment vendor.

Here's why: To put it bluntly, the Droid is no iPhone and Jha is no Steve Jobs. Motorola has a fascinating history and is obviously a pioneer in its field but Apple's story is more riveting and the company's audacious moves with the iPod digital music player, the iPhone and the Macintosh computer have been even more gripping with its varied audiences.

When Apple introduced the iPhone it had a ready audience eager to snap up any gadgets introduced by the company. That crowd had exploded beyond the usual Apple fans following the success of the iPod digital music player. Motorola cannot boast such a fanatical following to help accelerate initial demand for the Droid.

The evidence is in the financial numbers for the two companies. While Motorola's annual sales have been on a downward slope, Apple's revenue has been surging and is forecast to exceed $40 billion in the fiscal year ending September 2010, from $36.5 billion in the 2009 fiscal year.

Only two years ago, Apple's revenue was $24 billion. The company has benefitted strongly from market-leading demand for the iPhone, which sold 20.7 million units in fiscal 2009 from 11.6 million in 2008 and a mere 1.4 million in 2007.

Motorola on the other hand has seen its sales wither along with demand for its handsets. Annual revenue slid in 2008 to $30 billion from a high of $42.8 billion two years earlier and are forecast to drop this year to $22.3 billion.

The second challenge facing Motorola is that its smart phone move is coming years latebehind even other industry laggards like Sony-Ericsson and even industry leader Nokiaand the company has lost the first-mover advantage that Apple so effectively leveraged when it introduced the first iPhone on Jan. 9, 2007.

Notwithstanding the enthusiastic response the Droid has so far garnered from communication service provide Verizon Inc., buyers and an industry panting for a smart phone that can knock the iPhone off its perch, the Droid is coming into a market bursting at the seams with similar devices.

In order for Motorola to make a significant dent on the smart phone segment with the Droid and recover lost market share, other manufacturers will have to slip up badly and that's quite unlikely in this intensely competitive environment.

Jha seems to be anticipating this with a focus on driving smart phone sales deeper into all segments to the extent that even people who currently buy feature phones will be able to afford phones that are currently out of their price range.

Motorola, he said, is looking to cut smart phone costs down to less than $200 per unit.

This strategy is supported by the fact that most consumers seem to want phones that do more than offer simple voice and text communication programs. For instance, "over 50 percent of the shipments in the United States will be smart phones. And that represents potentially as large as 70 percent of the profit pool in the United States," Jha said.

Motorola, he said, will seek to push prices further down to below $200 in the smart phones segment. "It's that kind of a range of pricingwhether it's $150, $200 or $250that we need to deliver to really expand the scope of where Android can play and ... that will enable us to go address the feature phone marketplace with Android," Jha said.

What this means in effect is that Motorola will be initiating a pricing war within the smart phone segment to regain lost market share.

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