Motorola hopes to revive cell phone biz

Motorola's head of corporate development and strategy tells CNET News.com that the company doesn't want to lose its handset business.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read

BARCELONA, Spain--Motorola still believes in its handset business and is looking for ways to revive it, Don McLellan, Motorola's senior vice president for corporate development and strategy, said during a one-on-one interview at the GSMA Mobile World Congress this week.

Motorola understands the value of its brand, which has been over 80 years in the making, McLellan said. But when the stock dipped to around $10 after the company reported disappointing fourth quarter earnings in January, he and his fellow executives had to do something to show investors, employees, partners, and suppliers that they understood the stock was undervalued and that they were working to fix the problems, he said. A week later, executives said they were reviewing strategic options, including possibly separating Motorola's handset business from the rest of the company.

"We realized the value of the handset business wasn't being recognized," McLellan said. "So we recommitted ourselves to fixing the problem."

While that may be the case, the public disclosure of the review has confused some people in the industry, including many journalists, who have assumed Motorola is looking to sell the handset business. Earlier this week, Greg Brown, Motorola's CEO, told the Reuters news service that he is committed to Motorola's handset business. McLellan reiterated that point in our discussion, although he would not specifically rule out selling the company.

The crux of Motorola's problem is that it hasn't been making phones that people want to buy. In the last quarter, the company's market share dipped to 12 percent. A year ago, Motorola had market share of 20 percent. The last hit phone it had was the Razr.

McLellan recognizes Motorola's challenges. And he said that the company must first and foremost concentrate on making phones that people want to buy. Of course, he and the rest of the Motorola team also understand that this will not happen overnight. Brown said on the company's earnings call that it could be 2009 before Motorola can turn around the business.

The company's lackluster handset announcements at Mobile World Congress this week were strong evidence that the company isn't yet ready for a comeback. The Z6w looks like a Rizr clone, but it supports Wi-Fi and includes a 2-megapixel camera, and a music player. Motorola also announced the W161 and W181, two basic candy bar phones for the low end of the market.

Products Motorola introduced in May also haven't been a huge success. Mostly these phones were nothing more than souped-up versions of previous models that now had 3G, or third-generation, network support.

While simply developing cool new handsets sounds like a simple solution to Motorola's problem, in practice it's not that easy. The problem is that as Motorola loses market share it also loses its scale, which makes it more difficult to make money based on its current cost structure. The "strategic review" will hopefully help Motorola and its partners figure out how to realign its cost structure. Before the company even announced it was thinking of alternatives, it had renegotiated a deal with its chip supplier Qualcomm. As Motorola figures out how to structure its costs, McLellan said, the company can reinvest that money in developing new handsets and getting them to market.

McLellan said the review process has already opened the door to several partners who want to talk about ways to fix the business. But he declined to comment on reports that the company is looking to sell off its infrastructure business to Nortel Networks.

As for how long the strategic review will last, it's hard to tell, McLellan said. One thing is for certain, though: Motorola has a lot of work ahead of it.