Motorola Becoming Smart

Struggling mobile phone developer Motorola Inc (MOT) unveiled yesterday its first high-end 3G smart-phone named “Motorola CLIQ.” Outside the U.S. this handset will be known as “Motorola DEXT.” The company will start shipment of these devices from the coming month.  

Motorola or any of its carrier partners has not given any price information for either CLIQ or DEXT. However, industry sources predict that price may be within the range of $100 - $150 throughout the world.

Dr. Sanjay Jha, the co-CEO and the Mobile Device division chief of Motorola, has also announced that the company will introduce its second 3G smart-phone within next few weeks. That device will also be based on Android software. Motorola is trying hard to expand this platform using its proprietary MOTODEV program. Management declared that another 30 3G high-end mobile handsets are in the offing during fiscal 2010.  

We believe that the introduction of CLIQ/DEXT will place Motorola as a formidable player in the high-end mobile device market. Although the basic mobile phone industry is facing a downturn, the feature-rich smart-phones are seeing strong consumer preference.

However, this is also our assessment that the company needs to do more to become a major force in the intensely competitive smart-phone market. Our analysis is based on following observations:  

• (1)   In the U.S., CLIQ will be available with T-Mobile, which is the smallest nationwide wireless service provider. The large carriers like Verizon Wireless (VZ - Analyst Report), AT&T (T - Analyst Report) and Sprint Nextel Corp (S - Analyst Report) enjoy more than double subscriber base than that of T-Mobile. This means CLIQ will target a limited customer base with smaller upgrade potential and lower promotional budget.  
• (2)   Besides developed economies, Motorola needs to give more emphasis to emerging markets. China is quickly building nationwide 3G networks, and India is likely to see this technology from early 2010. So far, Motorola has failed measurably to capture these high growth potential markets. Its iconic Razr phone failed to make any decisive impression in these markets due to lack of marketing skill. On the other hand, Nokia Corp. (NOK - Analyst Report), Samsung LG and Sony-Ericsson -- a joint venture of Sony Corp. (SNE - Snapshot Report) and LM Ericsson AB (ERIC - Analyst Report) -- all have nicely catered these markets.
• (3)   Motorola has a history of maintaining large and complex product lineup. This may make the revival of its ailing handset division more difficult. In contrast, Apple Inc (AAPL - Analyst Report) is having only one product lineup of iPhone; Research In Motion (RIMM - Analyst Report) is concentrating on BlackBerry Bold, Storm and Tour; Palm Inc (PALM) is focusing purely on Pre and its smaller edition Pixi. Motorola’s decision to offer 30 3G handsets may further complicate its operating cost structure. In the last quarter, this division incurred an operating loss of $253 million on sales of $1.8 billion.  
• (4)   The smart-phone market is quickly getting flooded with Android-based mobile devices. At present, T-Mobile itself is offering two Android-running high-end phones developed by HTC Corp. of Taiwan. From mid-October, Sprint Nextel will also offer a new Android-based mobile device of HTC Corp. Samsung Electronics is also developing a smart-phone based on Android platform. This means Motorola has to differentiate its upcoming 3G phones from with new features.  

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