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Can the Droid save Motorola?

Motorola's new Droid is expected to be a hot seller. But will it be enough to turn Motorola around?

Could Motorola's new smartphone, the Droid, be the company's next Razr a la 2010?

Judging from the hype surrounding the new smartphone, which is the first device to use the Google Android 2.0 operating system, there is a good chance the Droid could be the breakthrough device that helps Motorola rise from the ashes. But it will likely take more than a single phone to get Motorola back in the game after losing market share for nearly three years, especially as competition in the handset market intensifies.

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Gadget bloggers and device reviewers, such as our own Bonnie Cha, have been impressed with the new Droid, which was announced on Wednesday. But Motorola's mobile devices CEO Sanjay Jha said that the Droid is just the beginning. The company plans to introduce no fewer than 20 devices using the Google Android operating system in 2010, he said during the Droid launch event in New York on Wednesday.

The Droid and the Cliq, which is being sold on T-Mobile USA's network, are the first two Motorola Android phones to hit the market. But Jha said that the Google Android operating system will not only be used in high-end devices like the Droid, but it will also be used to power less expensive phones, creating a new tier of smartphone that will eventually replace the basic feature phone category.

"With these products we've taken the first step in positioning ourselves for the mobile Internet and smartphone market," Jha said during the company's third-quarter earnings conference call Thursday. "And in 2010, there will be a variety of new devices as we expand the portfolio across various tiers. We will continue to shift the mix of products to respond to the growing smartphone opportunity."

Motorola, the iconic American company that had practically invented the cell phone market, has struggled for several years now. After the runaway success of the ultra-thin Motorola Razr in 2004, the company has been unable to come up with a hit phone.

As the company's market share slipped lower and financial losses mounted, shareholders ousted then CEO Ed Zander. And Jha, an engineer who had worked his way up the ranks at mobile chipmaker Qualcomm, was brought on board to turn the business around. In addition to cutting costs, he quickly worked to get Motorola's product development teams back on track. He recently told The New York Times that the situation at Motorola was much worse than he had expected when he took the job.

He said when he arrived at Motorola he found a company with "a dysfunctional management culture" that simply didn't understand that consumer preferences had shifted. Customers no longer wanted just a phone for making phone calls. Instead, they wanted a device that could also access the Internet, give them directions, and provide text-based communications.

The Droid
The Motorola Droid Kent German/CNET

Early on Jha scrapped the company's lineup of unprofitable phones that were using dead-end technology. In an attempt to streamline development and refocus the company's attention on creating new, cool devices, he concentrated the company's efforts almost exclusively on building phones using the Google Android operating system.

About a year after announcing this new strategy, the company introduced the Cliq and the Droid. In general, the Cliq has gotten a good reception from reviewers, but there seems to be much more enthusiasm around the Droid, a touch-screen device that some say rivals Apple's iPhone.

Some of the impressive features include Google-powered voice-activated search, a 550MHz processor, and a 3.7-inch with 480x854-pixel resolution. But what is likely to make the device a true competitor to the iPhone is the fact that it is exclusively available on the Verizon Wireless network. Verizon is the largest wireless operator in the U.S. and it has the largest coverage footprint. The company has also gotten high marks for its reliable network. And its customers are among the most loyal in the industry.

Verizon has been looking for an iPhone-killer since AT&T started its exclusive partnership with Apple. But devices, such as Research In Motion's first touch-screen phone, the BlackBerry Storm, have not met the challenge.

Verizon is expected to launch its most aggressive marketing campaign ever to promote the new device, John Stratton, executive vice president and chief marketing officer at Verizon Wireless, said at the Droid launch event in New York this week. The company has already launched a pre-advertising campaign that spoofs the iPhone. Analysts expect the device to sell well out of the gate.

"Verizon sold a million of the original BlackBerry Storms in the first nine weeks it was available," Avi Greengart, an analyst with Current Analysis, said. "And that was a buggy mess. So I expect this device will at least meet that, if not exceed it."

Motorola's Jha said during the company's earnings conference call Thursday that the company is ready for a flood of orders.

"We feel very good about our ability to meet demand for the Droid," he said. "We've spent a lot of time studying what has happened in market when successful new products have been introduced. And we've been working closely with Verizon, and we've got good access to components suppliers that we feel good about things."

Motorola's management team has successfully cut costs, which included eliminating 8,000 jobs. And on Thursday it announced its second consecutive quarter of profits after experiencing heavy losses and shrinking market share in the cell phone business for several quarters.

Success not guaranteed, analyst cautions
Wall Street analysts are encouraged by the good news.

"Directionally, things are moving the right way in terms of new devices, carrier partnerships, and narrowing losses for Motorola's Mobile Devices segment," Mark Sue, an equities analyst with RBC Capital, said in a research note.

But Sue also cautioned that Motorola's success is not guaranteed.

"It won't be a smooth ride however, with timely delivery of new smartphones, high quality, and carrier endorsements key elements of Motorola's future success," he said.

What's more, Motorola also faces tough competition in the smartphone market. This holiday season consumers will be inundated with iPhone alternatives. Research In Motion has two new BlackBerry devices on the market. And there are a slew of other Android phones that have recently been introduced.

In addition to the Motorola Cliq and Motorola Droid, there is also the Samsung Moment and the HTC Hero, both on Sprint's network. T-Mobile also has other Android devices, including the G1 and the myTouch. The Palm Pre, which went on sale in June, is yet another smartphone on the market with similar functionality.

Again, one of the good things the Droid has going for it is its affiliation with Verizon, whose executives seem pleased to reconnect with the handset maker.

"We've had a long history with Motorola," Verizon's top marketing executive, John Stratton, said at the Droid event. "And we've lived through the company's ups and downs. This is a new Motorola. We took a chance, maybe even a risk, at the early stage in the rebirth of the company, and we're delighted in what we've seen in last 12 months."