Motorola Losing Market Share as Handset Demand Slows, Officials Say

Q4 handset sales sank 38 percent year-over-year to $4.8 billion, as the division’s global market share fell an estimated 12.4 percent, Brown told investors. Market share in the U.S. stayed “effectively flat,” but tanked in China, Latin America and the Europe, Middle East and Asia regions, he said. Most Motorola Q4 handset sales came from North America and Latin America -- 53 percent and 20 percent, respectively, he said.

Mobile device numbers are only looking worse this quarter, Brown said, predicting a sales drop worse than the 10-15 percent seasonal decline Motorola usually sees from Q4 to Q1. Units sold and sales figures for handsets will be “down significantly” from Q4, leading to an operating loss and more market share deterioration, he said.

Demand for Motorola handsets from Thanksgiving through the Christmas season were lower than it expected, said Tom Meredith, chief financial officer. The slowing economy hasn’t been a problem, though Motorola plans to be “vigilant,” Brown said. Slowing handset demand is “more Motorola-specific,” Meredith said.

Motorola officials wouldn’t say if it was affected by Sprint’s Q4 slide, declining to specify sales it made of iDEN handsets for the carrier. Sprint’s stock fell almost 25 percent Friday after the company said it lost 683,000 post- paid subscribers Q4 (CD Jan 22 p5). Motorola looked at iDEN handset sales in making its gloomy Q1 predictions, Brown said. Motorola will keep working with Sprint on infrastructure and handsets, but will “watch [iDEN] closely,” he said.

Motorola has “gaps” in its mobile device portfolio, particularly in 3G and emerging markets like China, Brown said: “We've got to refresh the product portfolio as soon as we can.” Motorola will “aggressively” attack costs, focusing on reducing mobile device outlays and speeding time to market. Brown expects the company to show progress on that front by year end, with a “more robust and competitive” portfolio apparent in 2009, he said.

Motorola’s struggles are rooted in product development, said Current Analysis analyst Avi Greengart in an interview. Motorola can’t keep relying on best-seller RAZR to compete with Nokia and Apple, he said. “You need hot products,” he said.

A wider partnership with Qualcomm figures in Motorola’s effort to improve cellphone business, Brown said. Motorola said Wednesday that by year end it will start using Qualcomm chips in UMTS 3G handsets. It gave no financial terms. Motorola also gets UMTS chips from Texas Instruments and Freescale. On the Q&A portion of Motorola’s Q4 call, a Charter Equity Research analyst asked how adding a third UMTS supplier -- more than the industry norm -- cuts costs. Brown denied it poses problems, saying three suppliers is a “good thing both strategically and financially over time.”

Injunctions against Qualcomm chips won by Broadcom (CD Jan 3 p1) haven’t affected Motorola, Brown said. “The Qualcomm-Broadcom situation is something we'll monitor closely,” he said. Meantime, Motorola is “well positioned” to compete, Meredith said. The Qualcomm-Broadcom dispute is a “significant issue” for Motorola, said Greengart. If the handset maker wants to fix its business, it needs a deal with one of the semiconductor rivals, he said.

The Motorola brand remains “remarkably strong,” Brown said. “I think we'll be surgical with our marketing spend and look to augment the specific geographies and the new product launches to make sure Motorola stays relevant and top of mind.”