Study: Motorola Q positioned for success

New research by iSuppli suggests Motorola is keeping costs down on manufacturing its new smart phone.

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
Motorola's Q phone stands a good chance of success because the company has controlled costs in its effort to be the first handset maker to price a smart phone for the consumer market, according to a new study.

On Thursday, market research firm iSuppli released a report suggesting the Q's material cost--the total value of all its components--amounts to only $150 per device. When manufacturing expenses are added in, each Q costs Motorola roughly $158, iSuppli estimates.

iSuppli conducted the study by taking the Q apart and pricing each component.

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Video: The Motorola Q
CNET's Bonnie Cha takes a First Look at Motorola's smart phone for consumers.

Verizon Wireless, the exclusive seller of the Motorola Q, is offering the smart phone for $199 with a two-year contract and for $349 with a one-year contract. Verizon Wireless pays about $300 wholesale for the Q, according to some Wall Street analysts.

Even though iSuppli hasn't yet analyzed the cost of building comparable products from competitors, such as BlackBerry maker Research In Motion and Treo maker Palm, analysts with the firm said the Q's low price and inexpensive design will likely be key assets for Motorola as it vies for market share against established rivals and targets the consumer market.

"The challenge for service providers is that they subsidize the cost of the phone," said Dale Ford, vice president of market intelligence for iSuppli. "So anything handset manufacturers can do to keep costs down makes the product more attractive to carriers as well as consumers. Motorola clearly benefits too from the opportunity for better profit margins."

The new Motorola Q, which went on sale earlier this summer, is a cross between a BlackBerry and a video iPod, complete with its own QWERTY keyboard and abundant multimedia functionality. It's Motorola's first foray into the smart-phone category, which has traditionally been dominated by the BlackBerry and Treo.

RIM and Palm have targeted business customers with their products, but Motorola has its eye on consumers. The Q, which sells to consumers for about half the price of a comparable Palm Treo, is a thin and light phone that runs Windows Media Player and has built-in dual stereo speakers and a 1.3-megapixel digital camera.

Motorola has high expectations for the Q, as it follows in the footsteps of the company's stylishly designed phones, the ultra-thin Razr and Slvr. These phones, particularly the Razr, have generated massive sales volumes and helped solidify Motorola's position as the world's No. 2 mobile-phone maker.

While most analysts agree the Q offers consumers a solid smart-phone option at an affordable price, some believe the Q's path to success may take longer than Motorola expects.

"Motorola's initial estimates of the ramp on the Q are optimistic," said Susan Kalla, managing director of research for the equities firm, Caris & Company. "There is a market for smart phones, and particularly for the 'smart phone-lite,' which is what the Q is. But I think it's going to take a while for consumers to realize they need it. It's a very different product than the Razr."

Still, analysts at iSuppli believe Motorola is positioned well in the overall smart-phone market considering the low-cost of manufacturing the Q handsets.

"Motorola is stepping into the smart phone market in a stronger way than they have done before in other markets," said Ford. "The Q puts them in the market with a compelling offering that should help them pick up market share."