By Sinead Carew - Analysis
NEW YORK (Reuters) - Motorola Inc MOT.N is betting on Google Inc’s (GOOG.O) Android cellphone software to liven up its next generation of devices, but analysts doubt it is enough to revive the fortunes of the mobile phone maker.
The decision by Motorola Co-Chief Executive Sanjay Jha to pare the mobile devices unit by 25 percent, and to scale back the number of devices and software platforms Motorola develops, are practical moves for a company whose phone sales dropped by a half in just a year.
But even analysts who recommend Motorola shares do not expect these plans to soon revive the company, which is fighting increasingly stiff competition with fewer resources and demoralized workers.
“I‘m bullish on the stock, not at all on the handsets,” said Goldman analyst Simona Jankowski. “I feel their position in handsets is awful and will get worse.”
Jankowski only recommends Motorola shares on the premise that the price does not reflect the value of non-handset businesses, such as television set-top boxes and wireless network gear, and an estimate that an implied valuation handicap of $5 billion for the cellphone unit is too severe.
Motorola shares have fallen more than 60 percent in the last year, giving the company a market value of $10.28 billion on Monday, based on a share price of $4.55.
Analysts say Motorola will find it tough to compete in a cutthroat market where the focus has turned to software and inventive user interfaces, such as touchscreens popularized by Apple Inc’s (AAPL.O) iPhone.
“That’s extraordinarily difficult. Motorola has never shown it can innovate in software, ever,” said Current Analysis analyst Avi Greengart.
He said Motorola’s strength in hardware shown by phones such as Razr, a hit in 2004 and 2005, and the Renew, its latest device made from recycled bottles, would be little help.
“They’re competing in a software era using hardware and their products have been stale for two years,” Greengart said.
Many analysts welcomed Motorola’s decision to develop a phone for later this year using Google’s open-source Android operating system, instead of several rival systems including home-grown software.
But the problem is that rivals are also using Android. “If you come out with a plain vanilla Android phone in the second half, you’re no better off,” said Greengart.
Besides iPhone, market leader Nokia NOK1V.HE, and Android rivals such as HTC Corp (2498.TW), Motorola also needs to battle Palm Inc PALM.O and its highly anticipated Pre phone, and Research In Motion RIM.TO, whose BlackBerry email phones have a passionately loyal following.
And Jha has to do this with 5,000 fewer cellphone workers. Nobody disputes the need for cost cuts to reflect shrinking sales, and some analysts are looking for more. But company morale is a worry.
“My sense is that handset employees are more concerned about job security than getting the new products out,” said American Technology Research analyst Mark McKechnie.
These employees will be further tested in the coming months as analysts expect continuing market share losses and device sale unit declines for at least two more quarters.
The company on Tuesday posted a fourth-quarter loss and it said it was suspending its quarterly dividend and looking for a new Chief Financial Officer.
Motorola slid to fifth place in the global handset market in the fourth quarter, down one notch from the quarter before.
Goldman’s Jankowski sees Motorola phone sales falling to 14 million in the current quarter and to 13 million in the June quarter, before edging back up to 20 million in December.
UBS analyst Maynard Um said it makes sense for the company to focus on keeping its carrier customers up to date while it develops the new phone. He noted that Motorola still has a recognizable brand and an established distribution channel working in its favor.
“There’s always a chance they will (recover)” he said. “Is it going to be more difficult? Absolutely.”
Reporting by Sinead Carew; editing by Richard Chang