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In order to improve traction in the hardware market, Google Inc.’s Motorola Mobility slashed the price of its flagship smartphone, Moto X.

Motorola Mobility has lowered the price of Moto X by 20% to $399 at all U.S. carriers. Powered by Android OS, Moto X comes with a 4.7 inch display, a camera designed for a quick boot-up, 16 gigabytes of memory, better screen resolution and battery life.

Features in the Moto X include design customization options whereby users can personalize their handset with their choice of colors and materials. It also has a Touchless Control feature which uses Google Voice to add voice-recognition capabilities and turn on the phone even without touching.

Google bought Motorola for $12.5 billion in 2012 and intends to run it as a separate unit, with its phones based on the Android OS. The deal was the biggest in its 13-year history and propped up Google’s portfolio with more than 17,000 patents.

The price cut, which comes only after four months of Moto X release, is considered by many analysts as an indication that the device is not performing well. However, it is not clear how Motorola will pay for the price reduction.

According to a data report from research firm Strategy Analytics, Motorola sold roughly 500,000 phones in the third quarter of 2013 after its release in Aug 2013, while its competitor Samsung sold more than 10 million Galaxy S4 phones within a month of its April release. The report clearly indicates that the Moto X has so far failed to ignite sales.

As a result, it becomes important for Motorola to introduce improved products at competitive prices to address the needs of its target market. We believe that reducing the price of Moto X will slightly put the company in a better competitive position versus its competitors including Samsung, whose flagship device, the Galaxy S4, is highly priced at $600.

Google is a market leader in online advertising and its mobile strategy has hit the target so far. Its Android OS has gone a long way toward cementing its position in the mobile segment.

Also, the Motorola hardware segment performed well in the third quarter, with revenues jumping 12.3% sequentially, but staying 56.5% below year-ago levels.

Google currently carries a Zacks Rank #2 (Buy). Stocks that have been performing well in its sector and are worth considering include Blucora Inc (BCOR - Snapshot Report), Facebook (FB - Analyst Report) and Aol Inc. (AOL - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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