Motorola Gains Market Share from Rival Cell-Phone Maker Nokia
Source: Chicago Tribune
Publication date: 2002-07-13
Jul. 13--When AT&T Wireless was preparing to roll out a new network last year, it made the rounds of cell phone-makers to see which of them could supply compatible phones.
Only Motorola Inc.--the industry's laggard just a few years back--stepped up in time for AT&T's launch.
Not only did Motorola grab the lead in supplying phones for advanced networks, the Schaumburg company also started rolling out phones that struck a chord with consumers.
Its sleek clam-shaped V60 phone was so popular--despite its steep $299 price--that dealers had trouble keeping it in stock during the December gift-buying season. "It was the `coolness' of the phone" that made it fly out dealers' doors, says AT&T spokesman Ritch Blasi.
There are no quick fixes when a company stumbles as badly as Motorola did in the 1990s, when its share of the world cell phone market plummeted from more than half to less than 20 percent.
But with a massive two-year restructuring nearly complete, Motorola's biggest business is getting back on track. "They're on the cusp of reaping the rewards of the changes they've made over the last couple of years," says Gartner Dataquest analyst Bryan Prohm.
The company is gaining market share from Nokia, the Finnish giant that supplanted Motorola as the world's leading cell phone-maker in 1998.
More important, Motorola's cell phone business is making money again.
Profit margins were improving last year at a time when the industry was closing the books on its worst period in history.
"December was an important month," says J.P. Morgan Securities Inc. senior analyst Ed Snyder. "Their margins were up when the market was weak worldwide."
Fixing its cell phone business won't solve all of Motorola's problems. It has also been revamping its large semiconductor and wireless networking gear businesses.
But it is probably safe to say that Motorola cannot prosper without getting good returns from cell phones, a business that contributed 33 percent of its $30 billion in sales last year. Investors will be watching closely for progress Tuesday when Motorola reports second-quarter results.
Motorola pioneered the cell phone industry two decades ago when the first commercial call was made using one of its clunky car phones. It dominated the days when mobile phones were expensive luxuries. As late as 1994, it enjoyed an enviable 60 percent share of surging global sales.
But as phones became more of a commodity, Nokia, with its more efficient factories and appealing designs, responded more quickly to changing tastes and to carriers' needs when they rolled out new digital networks.
Motorola was widely perceived as inflexible, slow moving and out-of-touch. "You won't see us making those mistakes again," says Ron Garriques, general manager for Motorola's worldwide cell phone products.
Now, Nokia is struggling while Motorola is making a comeback, albeit in a much slower-growing industry carved up by a bevy of fierce rivals.
"Motorola is showing signs of strength I haven't seen in years," says Jane Zweig, chief executive of Maryland-based wireless consultancy Shosteck Group.
Its progress is the result of a top-to-bottom revamp of operations, from design and marketing to manufacturing, overseen by former General Electric Co. veteran Mike Zafirovsky, president of Motorola's biggest division.
When the latest layoffs are complete next year, Motorola's cell phone and paging business will have shed about 45 percent of its employees, trimming to 18,000 from 33,000 workers two years ago.
It closed four factories including a plant in Harvard, moving production to Latin America and Asia, and streamlined its offerings from 65 phones to fewer than 25 models.
At the same time, Motorola beefed up its design studio under Tim Parsey, a former Apple Computer Inc. designer, and rolled out a lineup this year that included popular models like the V60 phones.
The impact finally is showing up in Motorola's bottom line, where operating margins in the first quarter were 4.7 percent. A year before, on slightly less revenue, Motorola's cell phone and paging business posted an operating loss of 17 percent.
Meanwhile, the company's phones continue to gain popularity. Motorola was the top-recommended brand in a June survey of U.S. mobile phone dealers by Wachovia Securities. The quarterly survey asks sales clerks which phones they most often recommend when customers ask their opinion.
Motorola got nearly twice as many recommendations as Nokia and more than any other supplier, taking four of the six top spots.
The company's V60 phones were the most-recommended choices for each of three types of networks operated by U.S. carriers--"an astounding success story for Motorola," the survey states.
The company also appears to be shaking its rap for designing expensive phones that are hard to use.
A shareholder at Motorola's recent annual meeting summed up the complaint: "I really don't need another fancy phone that does everything from whistle `Dixie' to start my car. I need something colorful I can find in my purse."
As if on cue, Motorola is getting ready to ship next month a new line of phones with snap-on "skins" in eye-popping colors, plus other features to let users change the look and feel of their phones to suit their moods.
The phones, due in stores in September, will sell for under $100. Prices vary depending on whether carriers mark them up or subsidize them.
"It's going to be a really terrific mass market product," predicts consultant Zweig.
At the high end, selling wholesale for about $300, Motorola will introduce a clam-shaped phone with a two-inch-square color screen and a Java browser for playing games or displaying information such as a streaming stock ticker, the latest sports scores or entertainment options.
Motorola's Garriques uses such a phone to check on his family's black Labrador, Deuce, from the office by downloading snapshots from a Web camera in his kitchen.
Cell phone-makers and carriers are counting on color-screen phones, plus the games and applications Motorola and others are developing, to reinvigorate their sluggish business.
They are also hoping to avoid repeating the mistakes they made two years ago when overhyped WAP (wireless application protocol) phones left customers squinting at tiny black-and-white screens, fumbling to download information they could get faster other ways.
Phones with digital cameras that shoot and e-mail photos are popular in Asia, where consultant Zweig observed a doting father photograph himself buying gifts at the airport for his children, then calling home to tell them to check him out on their computer.
Motorola plans to introduce a camera phone in the U.S. at the end of the year, though it's unclear whether the phones will take off here.
Motorola's recent gains have come largely from its leadership in China's fast-growing phone market and in the United States in a standard known as CDMA (code division multiple access), the fastest-growing cell phone technology in the Western Hemisphere.
"They've grown in almost every region, but in particular in China and the U.S. CDMA market," says Dataquest's Prohm.
To keep its momentum, Motorola must continue lowering costs--its single-digit margins compare unfavorably with Nokia's margins in the high teens--while establishing itself as a technology leader as phones morph from talking and messaging devices into multifunctional toys and business tools.
Motorola's goal is midteens profit margins and 25 percent market share by 2005.
"It's one thing to reinvent your portfolio for the next round of market evolution," Prohm says. "It's another to achieve a full-on renaissance in your business where you can address all potential market segments on the fly."
Motorola has placed itself in a position where such a rebirth is possible, he and others say, but it's by no means certain.
The company recently hired strategist Scott Durchslag, a former managing director at Silicon Valley's Chasm Group and a McKinsey & Co. veteran, to work on strategy and business development. One of his tasks will be helping Motorola decide its role in the critically important software market for mobile devices.
"We have a lot of initiatives under way to reduce costs and generate revenues," Durchslag says, "but we also need to step back and think outside the box."
Garriques, meanwhile, vows not to stumble.
His success formula?
"Beautiful designs, great relationships with carriers, cost competitive phones. Continued steady growth from a humble company, with good people who are focused.
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Publication date: 2002-07-13
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