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Struggling phonemaker is in for some painful changes

Google Inc. (GOOG) announced the first step in its plans to overhaul struggling recent acquisition Motorola Mobility on Monday.  As part of the overhaul it will cut 1 out of every 5 jobs at the phonemaker unit, and will close roughly 31 of the 94 offices worldwide.

I. From the First Cell Phone to Near Last

In the wireless industry there is perhaps no company with as long and rich a history as Motorola.

Founded in 1928, Motorola was a pioneer in the world of wireless communications, inventing the world's first wireless walkie talkie in 1940 and the first commercial cell phone in 1973.  It would go on to play a crucial role as an early maker of mobile devices and infrastructure.

But Motorola's problems have stretched for around a decade and a half as the golden glory of its heyday faded.

Motorola first cell
Motorola literally invented the cell phone, but almost exited the market amid failing sales.
[Image Source: Know Your Cell]

Since the late 1990s Motorola has languished, first being overtaken by Finland's Nokia Oyj. (HEX:NOK1V) and Research in Motion, Ltd. (TSE:RIM) in various markets, then later by young guns like Apple, Inc. (AAPL) and even a revitalized Samsung Electronics Comp., Ltd. (KSC:005930).  A minor hit in 2004 -- the RAZR -- quickly became another disappointment after Motorola failed to continue to push the design and feature envelope, preferring self-referential sequels.  

A friend of mine in the software industry close to the phonemaker recently told me a story of how a former Motorola executive was sent to check out a promising startup as a potential acquisition in 2009.  He returned to report that the company was of no real interest.  

Weeks later he had quit Motorola and joined the startup.  The name?  FourSquare.

Motorola had for decades attracted innovators, but sadly stories like that defection were commonplace for the phonemaker as it stumbled through a decade of disappointing earnings which eventually culminated in hard red losses.

Of all the wrong moves Motorola made, the company did make one wise bid, becoming an early adopter of the Android operating system, a move that temporarily halted its losses in the smartphone market and gave it a small breath of life.

II. Google's Restoration Begins With Fresh Blood at the Top

Now it's up to Google, makers of Android, to finish sorting out the mess.  The software giant bought a $12.5B USD "fix-me-up" in Motorola, and now it's tearing down the mildewed walls and uprooting the rotting floorboards.  And it's not afraid to start cutting close to home.

Globally Motorola employs around 20,000 folks -- about as much as RIM did at its peak in 2008.  Of those, 4,000 will now be cut.  That leaves Motorola with a workforce that will still be more than 50 percent bigger than struggling peer RIM.  The cuts will be painful, though, with around 1,300 -- roughly a third -- coming from the phonemaker's home country, the U.S.

Fixer upper
Motorola Mobility is a big fixer-upper for Google. [Image Source:]

Dennis Woodside, new CEO of Motorola tells The New York Times in an interview that the key to the phonemaker's revival will start with pulling out of markets where Motorola is actually losing money.  He comments, "We’re excited about the smartphone business.  The Google business is built on a wired model, and as the world moves to a pretty much completely wireless model over time, it’s really going to be important for Google to understand everything about the mobile consumer."

Google has also recruited Mark Randall, a star up-and-comer from, Inc. (AMZN) (and also a Nokia veteran), who is acting as Motorola's new supply chief.  He says that when he came onboard Motorola's parts chain was a mess, but that by using fewer suppliers and 50 percent less parts he will be able to substantially cut costs.

Other key additions include former DARPA chief Regina Dugan, who will lead Motorola's advanced technology group, and Vanessa Wittman -- former CFO of brokerage firm Marsh & McLennan Comp.s, Inc. (MMC) -- who now steps in as Motorola's CFO.

III. Motorola Has Some Advantages, Even Without Special Android Favors

As every analyst or foe states at every possible opportunity it should be interesting to see whether Google shows any signs of favoritism towards Motorola, over its third party Android partners.  So far Google's approach seems to mirror Microsoft's handling of partner Nokia -- to trade employees, but steadfastly avoid any sort of exclusive product or software offerings.

Motorola has some advantages going ahead.  Apple's case against it has been dismissed in the U.S., making it the first of the Android Big Three to be out of that legal nightmare.    In the features department, Motorola's phones like the RAZR MAXX hold the battery life crown, even beating Apple's perennial battery life performer, the iPhone [Source: AnandTech].

The RAZR Maxx remains king of battery life. [Image Source: Verizon Wireless]

But Motorola must not waiver from releasing high-profile flagship phones or it risks losing the publicity battle with polished market leaders Samsung and Apple -- both kings of public relations hype.

The fresh blood must deliver oxygen to Motorola's atrophying muscles.  That much is apparent after the latest quarter of losses followed by a new regiment of layoffs and cost cutting.

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RE: many models
By jimbojimbo on 8/13/2012 12:48:27 PM , Rating: 2
They released a Droid 4 almost 6 months after they released the Droid 3. It's pretty ridiculous actually. Then because of that they said that less than a year after the Droid 3 came out that it will not be getting ICS. Less than a year! Motorola, how can you not be shocked you're losing money?

RE: many models
By Roffles on 8/13/2012 12:58:14 PM , Rating: 2
And they released the Razr a couple months after the half-baked Bionic. A lot of OG Droid owners got burned with the Bionic -- thinking it was a no-brainer upgrade because the OG was such a solid device -- only to realize Bionic had many (too many) software and hardware inefficiencies. It was more like a Razr Beta phone. That high-pitched whining noise coming from the headphone killed me every day I owned that POS. I'm glad it's only my backup phone now.

RE: many models
By retrospooty on 8/13/2012 1:02:48 PM , Rating: 2
"less than a year after the Droid 3 came out that it will not be getting ICS. Less than a year! Motorola, how can you not be shocked you're losing money?"

agreed, there are too many models, but ICS update has nothing to do with it. The average US consumer upgrades their phone every 13 months. People buy phones based on what they do today, not an upgrade that may or may not come in a year. An upgrade is nice, but they had been losing money long before ICS upgrades and the lack of them for older models came into play.

RE: many models
By zephyrprime on 8/13/2012 2:16:14 PM , Rating: 2
The average american upgrades their phones every 2 years.

I think you are overestimating the techie level of the average american. Think of your grandma and you will be closer to the mark than thinking of your average dailytech reader.

RE: many models
By retrospooty on 8/13/2012 2:30:47 PM , Rating: 2
That's one study. I have seen others. I believe what I saw was a Verizon study, which is the US's biggest carrier.

13 or 21 months... It still doesnt change the point. Most people buy a phone based on its features and price today. Not on an OS upgrade that may or may not come in a year.

RE: many models
By JediJeb on 8/13/2012 7:03:48 PM , Rating: 2
I must be far from average, my last upgrade was to the V3 RAZR back in 2005. I just wish they had made a nice upgraded version of that for when mine finally gives out one day.

RE: many models
By Reclaimer77 on 8/13/2012 1:07:45 PM , Rating: 2
Motorola, how can you not be shocked you're losing money?

Most people think Ice Cream Sandwich is a desert, not an OS upgrade. To claim this is causing Motorola to lose money is laughable.

I bet if you polled iPhone users something like 15% might be able to tell you what iOS version they were on. And that's being generous.

RE: many models
By Tony Swash on 8/13/2012 2:12:18 PM , Rating: 2
I bet if you polled iPhone users something like 15% might be able to tell you what iOS version they were on. And that's being generous.

You may right but on the other hand Apple iOS upgrades are actually installed by a very high percentage of users, much higher than on Android.

Making money in the new and still rapidly evolving, smartphone market is very hard. Only Apple and Samsung have pulled it off so far. I would be very surprised if Motorola starts turning out handsets that are both popular and profitable. Presumably to do that Motorola would have to capture sales from other Android OEMs (let's not consider the fantasy of them capturing sales from Apple) and if that happened what would the OEMs make of that given Google's ownership of Motorola? To me Motorola looks like being a very big and costly mistake for Google.

RE: many models
By retrospooty on 8/13/2012 2:34:11 PM , Rating: 2
"To me Motorola looks like being a very big and costly mistake for Google."

Google: Makes billions of dollars per year and has some really great products and services.

You: Make irrational one-sided posts about Apple on the internet

Who's opinion would you trust on matters like this? I'd go with Google.

"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer

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