Make-or-break bet for Motorola as it takes on Android

Motorola Inc needs to spark some serious gadget lust next week when it unveils new phones to convince consumers and Wall Street that it's still a player in the global mobile industry, but the odds may be heavily stacked against it.

After losing market share for years, Motorola has made what is viewed as a make-or-break bet on Google Inc's Android mobile software, hoping the partnership with the giant Web company can help it win back customers.

Shares of the one-time market leader, now ranked fourth in global handset sales, jumped 11 percent earlier this week on investor hopes that the new phones could generate enough excitement to make Motorola's bat-wing logo famous again.

But while no one is expecting an iPhone-killer at the San Francisco unveiling on September 10, analysts say the risk is still that the new phones will not be unique enough to wow consumers, especially when other vendors also sell Android phones. "Early devices will not be significantly differentiated and could disappoint those playing the 9/10 launch," said Macquarie Research analyst Phil Cusick, who expects Motorola to display two new Android phones that day.

Motorola has given few details about the announcement, which will come during Co-Chief Executive Sanjay Jha's keynote at GigaOm's mobile conference. Jha first revealed his plans for creating Android phones in October.

He has said the new phones will be integrated with popular online social networks; but rivals such as Apple Inc, Research in Motion Ltd, HTC Corp and Palm Inc already have features for services like Facebook.

Shareholders have been impressed enough with Jha that they have more than doubled Motorola's share price since May. Still, the stock is down 70 percent from its 2006 peak of $26 and has been trading below $8 per share. "It's going to be extremely significant to the company's future," said Current Analysis analyst Avi Greengart. "If the phone does well, they live to fight another day."

Comparisons will inevitably be drawn to Palm's Pre phone unveiling, which was also seen as a last chance for that company. Pre reception was good and caused Palm's share price to quadruple, in part on the perception that the company has become a more attractive takeover target.

Should the initial reaction to Motorola's devices be as strong, the company could have a good chance of luring back consumers, investors and mobile service providers, analysts say.

PRETTY HARDWARE

Motorola turned to Google for phone software because its own strength has been in hardware. This was demonstrated by the Razr, whose slim form inspired imitations for two years before it started to fall out of favor in late 2006.

Analysts expect Motorola's new phones to have stylish enough hardware to secure distribution by mobile carriers, but the question is whether the software will be different enough to spur holiday season sales -- especially when the bar has been set very high by Apple's iPhone and the thousands of apps available for download from Apple's online store.

"Short-term, Motorola needs to win the purchase decision of specific carriers," Greengart said. "Long-term, they're going to need to do something more than selling pretty hardware running an operating system other competitors have access to."

Motorola's Jha has said several times that carriers were impressed with the Android phones. He told Reuters in a recent interview that he was encouraged when one operator executive told him "bat-wings are back."

Analysts expect Motorola Android phones to be sold by Verizon Wireless, owned by Verizon Communications Inc and Vodafone Group Plc, and by T-Mobile USA, owned by Deutsche Telekom AG. But Verizon said it is not involved in Motorola's announcement next week. T-Mobile said it will launch new Android phones this year but declined to give details.

Even if carriers did back the phone, some of Motorola's former shareholders say they would be wary of betting on the company unless it started to show sustainable improvements.

"I wouldn't touch the stock until they've launched three, four or five phones and they've gained market share for at least a year," said Jane Snorek, an analyst for First American Funds, which manages $35 billion in equities that used to include Motorola shares.

Deutsche Bank analyst Brian Modoff said he is impressed by Jha but agreed that investors should look beyond September 10. "If you get to several phones and they're all disappointing, then you have to start writing the obituary. I don't see that," said Modoff. He said he will focus on the reaction from young consumers who crave cool gadgets: "We'll see what the 20-year-olds think. That's what really matters."

Agencies

Motorola bosses take 25% pay cut

Motorola Inc, the second-biggest US seller of mobile phones, will freeze US pension plans and reduce executive salaries to help cope with the economic slump.

Co-Chief Executive Officers Greg Brown and Sanjay Jha are taking a 25 per cent cut in base salary in 2009, Motorola said in a statement. Employees in many markets won’t get a raise, and the company will temporarily stop making matching contributions to US workers’ retirement investment accounts.

Jha, hired in August to lead the wireless device division, seeks to turn around a unit that has posted operating losses of $2.8 billion since the start of 2007. He tapped Google Inc to supply software for phones after losing market share to Samsung Electronics Inc and Apple Inc, whose iPhone 3G topped Motorola’s Razr in the third quarter as the most popular US phone.

“Turnarounds are always hard to execute on, and a bad economy makes them tougher,” said Tavis McCourt, an analyst at Morgan Keegan & Co in Nashville. “I’d be shocked if this is all they do in 2009.”

The pay cuts and pension freeze will help Motorola add to the $800 million in annual costs savings it announced in October, including 3,000 job cuts, the company said.

Worldwide mobile-phone sales will drop 13 per cent next year, the first decline since 2001, as economic growth slows, analysts at Citigroup Inc said in a research note.

Motorola, based in Schaumburg, Illinois, rose 5 cents, or 1.1 per cent, to $4.46 at 12:07 pm in New York Stock Exchange composite trading. The shares had dropped 73 per cent this year before today.

Source: Agencies