Friday, January 19, 2007

RAZR is yesterday's news: Motorola cutting it's own throat, and the threat of the Apple iPhone sure isn't helping either

Bloomberg: Motorola Profit Slumps 48%; Competition Hurts Prices

Jan. 19 (Bloomberg) -- Motorola Inc., the world's second- largest mobile-phone maker, said fourth-quarter profit fell 48 percent as the company slashed prices to compete with Nokia Oyj and Samsung Electronics Co.
Net income dropped to $624 million, or 25 cents a share, from $1.2 billion, or 47 cents, a year earlier, Motorola said today in a statement. Sales gained 17 percent to $11.8 billion, in line with the company's preliminary results released Jan. 4.
The average selling price for phones shrank to $119 from $131 in the previous quarter as Motorola discounted the Razr and Q phones and sold more handsets in emerging markets such as India. Chief Executive Officer Ed Zander's failure to introduce a successor to the best-selling, high-end Razr hurt sales at a time when industrywide growth is at a five-year low.
``Market forces are putting enormous pressure on margins,'' said Kenneth Leon, an equity analyst at Standard & Poor's in New York. He rates the shares ``buy'' and doesn't own any. ``They will suffer through the first half of 2007.''
Shares of Schaumburg, Illinois-based Motorola have fallen 28 percent in the past three months on concern Zander is focusing on market share at the expense of profitability. The stock rose 5 cents to $18.76 at 9:38 a.m. in New York Stock Exchange composite trading.

Ah, the classic "Buy Market Share at the expense of your profitability" strategy. Amazingly, some companies keep coming back to it, like an addiction. "This time will be different" they tell themselves, "We'll just do it a little bit, it won't hurt us. We can stop doing it any time we want."

Without an outside intervention, we all know how stories like this turn out.

Profit-slashing aside, I believe that the sun is setting on the mobile phone as a category. Everybody who has any sense of the issue recognizes that the iPhone is not a phone. It's the first iteration of a new device: a handheld wireless computer* that is crying out for nomenclature that will define the entire category as we move forward.

In fact, the nitpicking and player-hating that has errupted all over the blogosphere about the percieved shortcomings of the iPhone all miss the point: it doesn't matter if it's expensive. It doesn't matter if it doesn't work well. It doesn't matter if it doesn't work at all. It's the beginning. It's the game changer, and more will follow behind it.

*in fact, it's the first truly personal computer. Yes, I know that Personal Computer is a registered trademark. So was iPhone, and that didn't exactly stop Apple from gloming onto it.

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