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To: Jim Oravetz who wrote (4976)	3/28/2002 12:49:22 PM
From: Jim Oravetz	Read Replies (1) \| Respond to of 5390

SemiOT:Motorola Unveils New 3G Phone -But at What Price for the Company? By DAVID PRINGLE Staff Reporter of THE WALL STREET JOURNAL Just a year ago, U.S. electronics maker Motorola Inc. was laying off thousands of employees. But that didn't stop Motorola manager John Thode from asking his boss for 700 more engineers. Mr. Thode was leading Motorola's efforts to develop a third-generation, or 3G, mobile handset, which would quickly download pictures, games and video clips. He told senior executives he needed the extra staff to get the product to market by the second half of 2002, in good time for the scheduled launch of 3G telecommunications services in Europe and ahead of the competition. "John said, 'We can come to the party early and be the only ones,"' said Mike Zafirovski, president of Motorola's personal-communications division. Mr. Thode got his 700 extra engineers -- and Motorola is the only phone maker to unveil a 3G handset, the A820, for the European market. But many analysts don't believe the company's head start will translate into market-share gains. Motorola was more than a year ahead of Finnish rival Nokia Corp. in launching handsets equipped with general packet radio services, or GPRS, technology, which allows phones to stay continuously connected to the Internet. But GPRS -- the predecessor to 3G -- has been slow to take off, and Motorola failed to make up ground on Nokia, the market leader, in 2001. The first 3G handsets, which will be expensive and will have limited-battery life, are expected to sell slowly. Motorola estimates that when the A820 goes on sale in the fall it will retail for €600 to €800 ($529 to $706), though telecommunications companies' subsidies will reduce the cost to consumers. Mr. Zafirovski said Motorola is likely to sell "hundreds of thousands" of 3G handsets this year, compared with tens of millions of mainstream mobile phones. To be sure, Motorola's 3G push has helped it secure a high-profile contract. In July last year, it announced a deal to supply 3G handsets to the Hutchison Whampoa Group of Hong Kong, which is aiming to launch 3G services in several different European markets this year, including the U.K. The ultimate value of the three-year contract will depend on how many of Hutchison Whampoa's customers buy Motorola's 3G phones, but the two companies estimate it will be worth more than $700 million (€793.5 million). Although some analysts say it might be late 2003 before 3G phones have a material impact on Motorola's revenue, they point out an early launch will help the U.S. company reestablish itself as a credible alternative to Nokia in the eyes of mobile-phone operators. "They have to try harder" than Nokia because Motorola is playing catch-up, said Samuel May, an analyst with U.S. Bancorp Piper Jaffray. But catch-up is an expensive game. Mr. May estimates Motorola is spending hundreds of millions of dollars developing 3G phones at a time when its handset division has been struggling to stay in the black. Motorola officials declined to comment. The biggest technical problem in producing such phones is cramming several different radio technologies and a large color-screen into one small handset, while maintaining a reasonable-battery life. "The 100-minutes talk-time is not outstanding," Mr. Zafirovski said, picking up a sample A820 handset at a recent trade show in Germany. He adds that Motorola is "not delighted with" the size of the phone, which is heftier than most handsets. Motorola's engineers had to make other compromises. Because of time constraints, the A820 uses a microprocessor -- the chip that controls its basic functions -- that was designed in-house, while the company plans to use microprocessors designed by ARM Holdings PLC of the U.K. in future 3G handsets. But overall Mr. Zafirovski said he is pleased. "As a first crack, it's not that bad," he said. Motorola also plans to offer another 3G handset, which is still under wraps, soon after the A820 hits the market. Mr. Zafirovski said this second handset will be exclusively provided to Hutchison Whampoa for six months. Although no other company has unveiled a handset that can be used on Europe's existing networks and the new 3G systems, Nokia and NEC Corp. of Japan both say that they will launch such phones in the fall. It isn't clear how their offerings will compare with the A820. Nokia has only given journalists a fleeting glimpse of its proposed 3G handset, which it plans to bring it out by late September. And NEC officials say that some of the features of its new phone are still to be decided. The prototype is "quite expensive currently" to make, said Koichi Matsuo, general manager of NEC Europe Ltd. NEC, which is making 3G phones for the Japanese market, has a contract to supply at least one million handsets to Hutchison Whampoa, and those phones will be competing head-to-head with those made by Motorola. Even though NEC has less than 1% of the European handset market today, Mr. Matsuo has big ambitions. "My target is for 10% to 20% in 3G terminals," he said.