Like high-octane fuel, Google’s Android (s goog) platform is accelerating handset sales for companies using it. Motorola (s mot) is the latest beneficiary, says Mark Sue, Managing Director at RBC Capital Markets. He wrote in a research note today, “that Motorola’s Droid X has exceeded even the most optimistic views.” Such optimism and demand for Android devices has RBC thinking prior estimates for Motorola’s 2010 calendar year revenue and earnings are conservative at $21.7 billion and $0.32 per share. Android is clearly helping Motorola in the short-term, but can it power long-term success?
Indeed, Android has become the saving grace for Motorola, which until recently hasn’t had a “hit” device since the thin RAZR was introduced at the end of 2004. Until the November, 2009 release of Motorola’s Droid, the first Android 2.0 device, Motorola was slowly fading from the phone forefront as the company tried to replicate success of the original RAZR with minor tweaks. What a difference an operating system and ecosystem can make. Early estimates show that Motorola sold 250,000 Droid handsets in one week after launch, and well over a million in the first 74 days of sales.
Motorola has followed up the initial Droid with Droid X, already sold out on-line and with a 2-week delay (Verizon Wireless says new Droid X orders will ship by August 3). Given the large display, speedy processor and an high-definition video recording capability I found by reviewing the handset, I’m not surprised to see the Droid X in short supply. But features are only part of the story — by marrying Google’s Android operating system to capable hardware, Motorola has produced another hit. The question is: Will Motorola’s reliance upon Android end in decline, just as it did with the RAZR?
At the moment, Motorola’s use of Android is working out nicely. Part of the reason for this is the backing of its main U.S. carrier partner: Verizon Wireless. The original Droid wouldn’t have been as successful without the $100 million in marketing dollars from Verizon, and it seems like there’s a Droid X commercial playing hourly on my television these days. If Verizon chooses to spend more ad dollars on competing Android handsets, it would be a blow to Motorola, although the impact will lessen over time — Motorola is gaining free word-of-mouth marketing thanks to customers of the Droid and Droid X.
The market for Android devices is getting crowded as well, another factor that doesn’t bode well for Motorola. At last check, 160,000 Android handsets are activated daily, working out to more than 58.4 million handsets annually. As good as Motorola sales of the Droid phones are, the company is still just a drop in the bucket. Companies such HTC manufacture dozens of Android devices that are helping it grow profits. Samsung, too, is beginning to follow the same approach: Its new Android-powered Galaxy S, which I have for a short-term loan, will be available on all four major U.S. carriers.
For now, Motorola is riding high on Android, but the success that Google’s platform brings could diminish over time. I don’t think the company should bother with its own operating system, but instead should continue trying to differentiate devices with innovative software features such as the improved Motoblur software used for social networking interaction. Motorola will need something unique and appealing as more brands leverage Android — it can’t afford stop innovating due to short-term success. If it does, Motorola will be cut out of the picture by a repeat of its RAZR-like reliance on Google’s Android platform.
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