Motorola's Problems Can Be Summed Up in a Word: iPhone


Not many big names in high-tech have as rich a history as Motorola (MOT). Founded a year before the 1929 market crash, Motorola first made its mark during the depression selling car radios. By the time it went public in 1943, it was making radios for police cars and its iconic walkie-talkie for U.S. soldiers.

Things got even better after the war. The first words uttered on the moon were transmitted through a Motorola transponder. One of the first affordable TV sets was made by the company, as was the world's first commercial portable cell phone. Five years ago, the Motorola RAZR cell phone was such a popular and stylish device that it appeared regularly in TV shows like Prison Break, Burn Notice and -- as a memorable plot point in a mind-bending season finale -- in Lost.

After that, it all seemed to fall apart for Motorola. Eight decades of achievements and innovation started unwinding in the face of a new threat: the iPhone. Motorola stumbled badly in its efforts to create a clam-shell successor to the RAZR -- just as Apple's (AAPL) iPhones were showing how glorious the future of smartphone could be.

Motorola's Stock Reflects Its Story

But the future of Motorola's consumer business is also in mobile, and that business hasn't recovered from the blow dealt by the iPhone. In response, Motorola created the Droid, one of the best-selling Android phones, based on Google's (GOOG) mobile operating system, to date. But its share of that platform's market is shrinking. It has struggled to compete with other Android manufacturers like HTC and stylish rivals like Samsung's Galaxy. Just last week, Gartner reported that Samsung became the top-selling Android phone maker in Motorola's home market.

Motorola's historical stock price reflects this story. The stock marched higher through the decades, made (like most tech stocks) an irrational rise and fall in the late 90s, recovered somewhat and then began a decline several years ago that it hasn't been able to reverse. After rising as high as $24 a share in 2006, the stock is now trading around $8 a share.

And not for lack of trying. Motorola has done what it can to right itself in recent years. Laying off workers to cut costs. Splitting the company into two units. Directing its engineering and acquisitions toward the goal of positioning the company in growth areas in the future.

The result of that hard work? Not much, at least so far. The latest example of the road to futility Motorola is stuck on came last week, even though the company delivered no shortage of news to show it's doing what it can to restructure itself in a fast-evolving and competitive market.

Most notably, Motorola announced that as of Jan. 4, 2011, the company will be officially split into two: Motorola Mobility, which will sell mobile devices and set-top boxes, and Motorola Solutions, which makes police radios and barcode scanners. A third division, making wireless-network equipment, will be sold to Nokia (NOK).

Upstaged, Again

Motorola Mobility will be the largest of the three entities after the spin-offs in terms of sales, although it's struggling for profits. Its brand is also the most visible with consumers, and so the company is working hard to develop innovative new products.

Last week, Motorola announced a few interesting moves in that regard. It bought privately held 4Home for technology that lets people control thermostats and security cameras with their cell phones. And it announced a line of products for next spring that will stream video to mobile devices and tablets.

But true to Motorola's recent luck, all that news was upstaged by comments from Motorola Mobility CEO Sanjay Jha to investors that the mobile-devices business would post a loss next quarter because of a bold new competitor coming to Verizon Wireless: the Apple iPhone.

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Analysts wasted no time in cutting their estimates and ratings on the stock, arguing that Motorola will either need to discount its phones sold through Verizon (VZ) or increase marketing on other phone networks. And that's Motorola's story in a nutshell in 2010: After all the hard work to turn the company around, the iPhone again steals the spotlight -- and potential Motorola customers.

It was likely no comfort to Motorola that the iPhone news was followed by another story concerning a smartphone: the one that supposedly exploded in a caller's ear while he was making a call. That volatile smartphone? Motorola's own Droid 2.

The exploding Droid will probably go down as an unfortunate footnote in Motorola's illustrious history. But somehow it speaks to the challenges the company faces in its near future. And what it says isn't pretty.

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