Motorola reaches promotion deal with Verizon

Posted May 28, 2010 at 5:51 a.m.

Dow Jones Newswires-Wall Street Journal | Motorola Inc. has
reached a deal with Verizon Wireless to ensure some of its upcoming
smartphones will be heavily promoted by the largest U.S. carrier, a big
boost as Motorola tries to turn around its struggling handset business.

The new phones are a key test for Motorola co-Chief Executive Sanjay
Jha, who needs to demonstrate he can deliver a string of winners and
reverse losses as he tries to prove his mobile devices division can be
a stand-alone business.

 Jha has bet heavily on phones powered by Google Inc.’s Android software and sold by Verizon Wireless, such as last fall’s Motorola Droid.

Verizon Wireless, which plans to add two Motorola smartphones in July, spent $100 million marketing the original Droid, helping to boost Motorola’s sales in the first quarter.

 Jha’s strategy leaves Motorola dependent on larger partners who are also working with Motorola’s rivals. The Droid brand is owned by Verizon, not Motorola, and the carrier picked Taiwan’s HTC Corp. to make its current high-end champion, Droid Incredible. Google, for its part, launched its own phone right after the Droid appeared.

Motorola’s cellphone division is still losing an average of $22 for each device it ships — nearly as much as Palm Inc. did before it raised the white flag and sold itself to Hewlett-Packard Co., according to analysts.

The Schaumburg, Ill., company is under pressure to show it can sell a large number of phones at premium prices, according to Deutsche Bank analyst Brian Modoff. “Every quarter they’re going to have to prove it,” he said.

 Jha, speaking at an investor conference Thursday, said he’s confident about the division’s goal to be profitable by year end and feels good about relationships with carriers like Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC.

“We will introduce new Droid products in the Verizon franchise,” he said, but didn’t provide more details.

Motorola, and its clam shell StarTac, introduced in 1996, dominated the nascent cellphone market at that time. It was overtaken the next decade by Nokia Corp.’s superior logistics and mass production as well as South Korean rivals.Since then, Motorola has bounced between flop and hit. The ultrathin Razr sold more than 110 million unitsafter being introduced in 2004, but then-CEO Edward Zander failed to find a successor and Motorola’s market share shriveled.

 Jha threw his company’s weight behind Google’s Android operating system after taking over Motorola’s phone unit in August 2008. At the time, the division was losing more than $500 million a quarter while struggling to update more than half a dozen software platforms, each customized for carriers around the world.

 Jha focused on creating high-end devices based on Android, axing other platforms and de-emphasizing lower-end devices. His first hit was the Droid. Smartphone shipments topped two million in the first quarter, and the division’s operating loss fell to $192 million from $545 million a year earlier.

But  Jha’s ability to capitalize on the Droid’s popularity is limited, because Motorola doesn’t own the name. Motorola has released eight phones so far this year and plans another dozen, but it is entirely up to Verizon Wireless to decide which carry the “Droid” brand.

Verizon Wireless, which has made its own bet on Google’s Android software to keep up with rival AT&T Inc. and the iPhone, licensed the brand “Droid” from Star Wars creator Lucasfilm Ltd. and is using it to distinguish its high-end phones.

“Never from the beginning did we assume this would be a Motorola thing,” said Lowell McAdam, chief executive of Verizon Wireless. “If 1 8 customers 3 8 think Android, that’s the generic. If they think Droid, that’s going to be the latest and the greatest on our network.”

Verizon Wireless’s decision to use HTC for the Droid Incredible illustrates the challenges Motorola faces as it tries to distinguish its Android offerings in the U.S. market. Google’s free software is used by many of Motorola’s rivals. Much of the profit in smartphones, meanwhile, is concentrated on BlackBerry devices and iPhones, gadgets that rely on custom software.

 Jha has said he is open to making non-Android phones, but doesn’t have the resources for such a move now. “Right now, I get what I need from Android,” he said.


One comment:

  1. Kevin May 28, 2010 at 7:30 a.m.

    Android is the better operating system vs. the one the iPhone uses, so Motorola is backing the right horse.
    I think Motorola’s biggest obstacle now (which this agreement helps to aleviate) is market saturation of phones using the Android O.S.