Ovum comment: Motorola changes strategy

Martin Garner
22 Mar 2007

Motorola yesterday announced that its Q1 results would give reduced revenues and leave it loss-making. It also announced a shift in strategy with the devices business, a management re-shuffle and an accelerated share buyback.

Sales for Q1 are projected to be $9.2 - 9.3 billion, down from the previous guidance of $10.4 - 10.6 billion and down from $10.1 billion for Q1 2006. It expects to report a loss of $0.06 - 0.09 per share.

The problems are in the handset division, with other divisions performing according to expectations. Motorola announced that it will now focus on restoring margins in its handset division and has dropped its previous pursuit of market share.

Greg Brown has been promoted from head of the Networks and Enterprise division to President and Chief Operating Officer. Thomas Meredith is appointed acting CFO following the retirement of David Devonshire.

Motorola will also increase the rate of share buybacks, lifting the amount this year by $2 billion to $ 7.5 billion.

Ovum's wireless intelligence director Martin Garner comments:

Many people had anticipated trouble at Motorola's handset division during last year, as the success it had enjoyed with the RAZR failed to materialise on newer products. The departure in February of Ron Garriques signalled the depth of this and yesterday's announcement puts some numbers on it.

During 2006 Motorola showed that it is capable of building volumes, but at the expense of profits - its gross margin fell steadily through the year and in Q4 its operating margin in the Devices division dropped to 4.4% from double-digits earlier in the year.

In January Nokia told the world that it now achieves margins in the lowest tiers of the market that are comparable with those across its Mobile Phones division. It also said it would 'turn up the heat' on its competitors during this year. Yesterday Motorola cited increasing price pressure in emerging markets as the major factor causing its strategy re-think.

Ed Zander estimates that it will take until the second half of this year to rebuild margins. When Nokia stumbled a few years ago, it took around 6 months to recover its market share position, and that was using heavy discounting to retain share.

We suspect that it will take Motorola longer than this, unless its new product portfolio contains some real winners that can start shipping more or less immediately, or unless it sacrifices significant market share - which is what we expect.

The reason for this is that Motorola's portfolio is under siege from its major competitors in all price segments and form factors. It no longer has the lead on design and it currently has very few devices that clearly stand out as high sellers.

Martin Garner is director of wireless intelligence, the Ovum GSMA joint venture, responsible for bringing the service to market and commercializing it.

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