Can Motorola's Big Bet on Android Pay Off?

A few days ago Business Week reported that Motorola was working on a new social networking-oriented, Google Android-powered smartphone. Later we pointed out that Motorola’s experiment with Android goes beyond just one phone. Today, The Wall Street Journal reports that Motorola’s bet on Android is much bigger than previously reported.

As we said earlier, the Motorola handset division’s new chief, Dr. Sanjay Jha, had been a big proponent of Google’s Android when he worked for Qualcomm. The Journal report says that his affection for Android is undiminished. He is likely to announce some draconian changes that will see the company double down on Android.

Motorola will cut the number of operating systems it uses to three — Windows Mobile for the high-end phones, Android for mid-tier (very high volume) phones and Motorola’s proprietary P2K OS. Apparently the company was using six different operating systems in its phones — no surprise they were such a mess. Jha is planning large scale job cuts at Motorola’s handset business, and he is also overhauling the manufacturing and supply chain operations of the beleaguered handset maker. The question is, will these steps work?

The current downturn is crimping demand for handsets and impacting every handset maker in the business. It is a downturn that is going to be equally hard for Motorola, since it doesn’t have any hit phones for this holiday season, which means it will keep ceding market share to the likes of Apple, RIM and of course, Nokia, which recently started cranking out CDMA phones.

RBC Capital Markets analyst Mark Sue recently pointed out that carriers are looking to subsidize smartphones, offering them for about $99. This puts pressure on feature phones — the kind Motorola sells. He recently cut his estimated sales for 2008 by 2 million handsets, topping out at 31 million. He is hopeful that some new devices next year will get the company back on track.

That is assuming that the world economy makes a recovery and consumer spending increases. Furthermore, the company is not likely to have its first Android phone on the market for a few quarters — which would give its opponents enough time to press their advantage. The way I see it, Jha’s effort to restore Motorola’s handset business is as difficult is climbing Mount Everest without a tank of oxygen. Still he has to try. If he succeeds, he gets about $100 million over three years and 3 percent of the independent handset business. If he fails — he walks away with about $30 million.

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