Motorola’s quest to reclaim the number one spot in the mobile handset market appears to be taking its toll on the rest of its business. The company announced plans to axe 3,500 jobs at the start of this year after fourth-quarter profits plummeted 48% and the head of its $28bn (£14.4bn) mobile device division, Ron Garriques, has just resigned to join computer company Dell.
Motorola pioneered the mobile phone in the 1970s and went on to dominate the handset market for more than two decades but has been living in the shadow of market leader Nokia in recent years. Its resurgence on the back of the iconic Razr handset has helped Motorola make up some ground, but the slump in profits came after the group offered customers a series of discounts in an effort to win market share from its Finnish rival. The 3,500 job losses, which amount to about five% of its workforce, are expected to save Motorola $400m (£205.4m) over two years.
Garriques’ departure is also a blow, particularly as industry sources claim he will spearhead Dell’s move into mobile phones. Analysts are now questioning whether Motorola’s product line-up is strong enough to continue the fightback as the popularity of the Razr begins to wane.
Strategy Analytics director Neil Mawston says/ "Razr was a revolutionary product and they only come around maybe once every five years," he says. "All its products coming out now are evolutionary. When you set the market alight with such a high-profile device it’s always going to be difficult to follow it up."
The company has tried to prolong the Razr’s life for too long, according to Gartner analyst Carolina Milanesi. "Motorola milked the Razr for so long and then didn’t have anything else to back it up," she says. "It kept going with it because there wasn’t anything else, but it was sacrificing its margins."
Mawston points out that Nokia had a similar problem three years ago when demand for its 3310 phone, which sold 100 million units worldwide, began to fall. "The key for Motorola is to do what Nokia did and bounce back with an improved product portfolio," he adds.
Nokia’s global market share fell from 35% to 28% when the 3310 lost momentum but, so far at least, Motorola’s share of the market is continuing to increase. At the end of 2005, its market share stood at 17.9%, according to Strategy Analytics, but by the end of last year it was 21.4%.
Motorola claims it sold more Razrs in the final quarter of last year than in any other quarter, and says it has now sold more than 75 million units globally. But rivals such as Samsung and LG have also capitalised on the popularity of sleek ultra-thin phones and Sony Ericsson is particularly strong in music with its Walkman range.
The Razr is still the best-selling phone in Europe and accounts for one in every 17 handsets sold. Motorola director of marketing for Europe Simon Thompson says: "The Razr was a category redefiner. It changed the relationship consumers had with their mobile phones. Our competitors have tried to replicate that success and good for them."
Thompson, the man who oversaw Honda’s multi-award-winning advertising as the company’s UK marketing director, joined Motorola a year ago tomorrow (Thursday). He told Marketing Week in a profile last year that he believed there was more potential in Motorola as a business, and that marketing could play a role in extracting that potential (MW March 30, 2006).
Thompson says he would give himself "six out of ten" so far and adds that he has learned a lot. He is working on what is perhaps the most significant marketing campaign since he joined to support the launch of Motorola’s Z8 high-definition handset in April.
"The new work changes our whole proposition," says Thompson. "It is now about the customer experience rather than cheap pretty phones. It’s quite a major move for the company but it’s where the consumer is at. We want to communicate in a way that is emotionally engaging and builds some brand love."
Thompson told MW last year that he could not understand why he had more emotional attachment to his car than his mobile phone. He says the new campaign is the start of that "emotional engagement" with consumers.
The Z8, which was unveiled at last month’s 3GSM conference in Barcelona, marks a greater focus on high-end phones for Motorola, but Gartner’s Milanesi believes it will only appeal to a limited market.
"Motorola claims to be reinventing the slider but I don’t think it’s going to have the mass-market appeal that the Razr had," she says. "There will also be more of an emphasis on what the product can do rather than what it looks like, and when you start leaning on the technology side the message becomes less obvious. The Razr was all about looks and it was something the consumer got straight away because it was very tangible."
Thompson said in March last year that he would be "thoroughly pissed off" if Motorola was not the number one handset manufacturer again within two years. But Nokia recorded its best ever quarter in the last three months of 2006, shipping a record 106 million phones.
Thompson adds: "As long as it’s done profitably I think it’s a really great goal and I believe it’s possible in certain markets. Motorola has a great heritage and is a very smart business with great phones. If we get the marketing right these things are possible."
But Strategy Analytics’ Mawston cannot see Nokia’s dominance being eroded and predicts that it will initiate a price war if Motorola gets too close. "If the difference in market share gets below 10% I think that will happen, and Nokia has got deeper pockets, bigger marketing budgets and a bigger R&D spend. Theoretically, Motorola can catch it, but I personally don’t think it will."
Thompson thinks brand is now more important than ever because so many phones are available free and people do not have to make their decisions based on cost. The mobile industry will be watching closely to see if Thompson can replicate the success of the Honda ads when the new campaign breaks on April 17. But Motorola’s designers must work just as hard to find a worthy successor to the Razr if its dream of reclaiming pole position is to become a reality.
|Mobile handset global market share (%)|
|2005||Q1 (06)||Q2 (06)||Q3 (06)||Q4 (06)||2006|
Source/ Strategy Analytics