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Motorola's New Smartphones: Sales, Not 'Dazzle'


Motorola ( (MOT)) has yet to unveil its new lineup of phones based on the Android operating system, but already analysts are placing bets on its likely success. While the new devices are likely to fetch higher prices than Motorola's current phones—and could give the ailing handset division a much-needed boost—they probably won't approach the popularity of the Razr, the best-seller that earlier in the decade set handset design standards, say industry analysts. Nor are Motorola's new handsets likely to vie directly with today's most popular smartphones, including Apple's ( (AAPL)) iPhone, Palm's ( (PALM)) Pre, and Research In Motion's ( (RIMM)) BlackBerry, these experts say. Most of Motorola's new models appear to target the mid-to-low end of the market and "won't be competing with today's best-selling smartphones," says Matt Thornton, an analyst at Avian Securities. Motorola Co-CEO Sanjay Jha has a lot riding on the success of the new crop of phones; a failure to release attractive devices has fueled market-share losses to competitors, including Apple. In the first quarter alone, the handset unit's operating loss widened to $509 million as sales tumbled 45%, to $1.8 billion. The worsening financial performance and tightening credit markets last year forced Motorola to scrap plans to spin off the division until at least 2010. High hopes for the lineup have begun to fizzle as prototypes surface in the U.S. and Europe and images and first impressions of the devices circulate. Many analysts doubt any of the new models will pack the Razr's punch. Some features are expected to be similar to those already introduced by rivals like . "I don't expect these phones to be razzle-dazzle," says Michael Mahoney, senior managing director at investment manager . Motorola wouldn't comment on its Android plans. the Smartphone market's lower endMotorola's chief differentiation will lie not so much in distinctive hardware as in unique mobile services made available through software customized specifically for consumer, business, and government users, says Richard Doherty, director with research firm Envisioneering Group. Motorola appears to be aiming for the lower end of the smartphone market. That may not be such a bad idea, considering how crowded the level now occupied by more expensive Apple and RIM devices is. "There's a lot of competition in the high-end category and not a big movement to address the lower price points," Thornton says. "It's a smart move. Motorola needs to be more near-term and start making some money." Even moderate sales of new models could help lift Motorola's revenue and margins. On average, the new phones are likely to sell for much more than the company's current models. One new Android handset should sell for $300 before carrier subsidies, and another for $500, says analyst Jeff Kvaal. That's less than the amount analysts estimate Apple receives for the iPhone, but good for a midrange smartphone. The relatively high prices should bump Motorola's average handset selling price to $147 in the fourth quarter, up from $123 in the first quarter, Kvaal estimates. Next year the division's average selling prices could go higher, to $154 a unit, he figures. Motorola's overall unit volume should increase 20%, to 70 million units shipped in 2010, Kvaal estimates. A timely holiday release?By making the new phones available in the U.S., Europe, and possibly other regions, Motorola could sell 1.5 million new phones in the fourth quarter of 2009 alone, Kvaal says. Even without a Razr-caliber hit, Motorola may be able to begin turning around its handset division. They "don't have to be that successful for them to claw back some market share," says Mahoney, who is considering buying Motorola's stock in anticipation of a rally. Motorola's shares currently trade at 6.58, but they could potentially go to 10 on robust fourth-quarter sales news, he says. Motorola will be selling several models, probably through several U.S. carriers, including and , analysts say. Verizon Wireless wouldn't comment on its plans, but executives have said they may consider offering Android-based devices. T-Mobile has said it will introduce two new Android phones from unnamed manufacturers later this year. AT&T ( (T)) declined to say whether it plans to offer Motorola's Android phones. Motorola's U.S. smartphone market share hovers around 3%, according to consultant , but that figure could grow if the new handsets come out in time for the holiday season, as promised. "It looks promising that Motorola is going to release on time," says Ramon Llamas, senior research analyst at IDC. Analysts expect the handsets to hit stores in October or November. Motorola wouldn't comment on its Android plans.
Olga_kharif1
Kharif is a reporter for Bloomberg News and Bloomberg Businessweek in Portland, Ore.

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