As Ed Zander outlined his vision of a mobile world at CES recently, he of course avoided to talk about some of the harder trends the industry will face this year — the rapid decline in the average cell phone prices due to both global competition and consumers in emerging markets like India and China favoring cheap phones. Today that caught up with the company, which reported that its fourth-quarter profit fell 48 percent and the company will cut 3,500 jobs, as it looks to improve operating costs.
Motorola’s handset business’ profit margins declined to 4.4% in the fourth quarter of 2006 versus 12% in the third quarter of 2006 — “That’s well shy of Zander’s aim of 13 percent to 15 percent, a goal he has failed to meet since taking over in 2004,” reports Bloomberg. Zander clearly is willing to sacrifice margins for market share. According to their earnings release, Motorola’s share of global handset market is now at 22.2 percent, up 4.3 percentage points versus 2005.
But cheap phones are not the only reason Motorola finds itself in a tough spot. A couple of days ago, Microsoft CEO Steve Ballmer was talking about how you can buy Motorola Q for $99. Ouch – wasn’t that supposed to be their big Blackberry killer and a profit machine? The company has been milking the RAZR design for a while, and hasn’t really come out with phones that can be labeled “smash hits.” Samsung, LG, Sharp and even Nokia have caught up with Motorola when it comes to “thin” phones.
Lazard Capital Markets analyst Christin Armacost, Director and Telecommunications Analyst has an equally gloomy outlook: “In our opinion, Motorola has a lot on its plate and is in one of its more challenging periods in recent memory, as we believe the competitive dynamics will weigh more on the company’s financial structure than will internal costs and processes that the company can control.”