Motorola's bad news continues

Motorola reported nothing but bad news this morning, as its cellphone collapse continues to hurt the company’s overall bottom line.

Co-CEO Sanjay Jha announced a $400m quarterly loss for the entire company, due to a 32% year-on-year drop in handset sales. This morning’s most complete account came from the FT:

The US group’s problems were highlighted by continued declines in mobile phone shipments and global market share during the latest quarter. The third largest mobile phone maker shipped 25.4m phones in the quarter, down from 37.2m phones a year earlier, and its global market share slipped to 8.3 per cent, down from more than 20 per cent just two years ago.

In addition to the poor financial results, the second bombshell was Motorola’s decision to delay the handset spinoff:

“While our strategic intent to separate the company remains intact, we are no longer targeting the third quarter of 2009, primarily due to the macroeconomic environment, stresses in the financial markets and the changes underway in Mobile Devices,” [Jha said.]

“We have made progress on various elements of the separation plan and will continue to prepare for a potential transaction at the appropriate timeframe that serves the best interests of the company and its shareholders.”

Finally, Jha confirmed plans (leaked yesterday by the WSJ) to reduce cellphone handset platforms to three: Windows Mobile and Google Android for its smartphones, and its legacy P2K for the low-end . Motorola had the most confused platform strategy in the entire industry, so this should be a good thing, but there are problems with all aspects of the plan.

Motorola has not been very successful in the profitable high-end smartphone segment, with lackluster products, weak distribution and competition that is getting worse. As the WSJ reported this morning:

Motorola faces many challenges, not least of which is a lack of new product releases combined with smartphone innovations from competitors -- like Apple Inc.'s iPhone and Sprint Nextel Corp.'s Instinct -- which have led to Motorola's losing a large portion of its market share. Motorola launched its first touch-screen phone during the quarter.

(Instinct??? Who’s buying the Samsung Instinct? Has anyone heard of the BlackBerry Storm?)

One thing that was not confirmed was the widespread rumor (including yesterday’s WSJ account) that Motorola would outsource Windows Mobile device production. If Motorola isn’t providing the operating system, and Taiwanese makers have economies of scope, why not hand them over? (Perhaps that’s still the plan, just not in today’s announcement).

As for the (Linux-derived) Android, rumors of a spring release of a Motorola phone were wildly optimistic, since (as of today) nothing will ship until the 2009 Christmas season. This suggest that whatever else, Motorola has still not become nimble and aggressive. Eric Zeeman of Information Week called this truly disappointing:

Android has been available to developers for about a year now. It takes most companies 12 to 18 months to develop a phone and bring it to market. HTC managed to bang one out in 11 months. The report that Motorola would have something ready by mid-2009 seemed about on target. Why the schedule has been pushed back, Jha didn't explain.

Either way, it leaves more room for Motorola's competitors to beat it to market with devices of their own. As I reported yesterday, Kyocera, Hop-on, OpenMoko and even ASUS have Android handsets in the works. They all have plenty of opportunity to gain some ground on Motorola.

Motorola will be effectively sitting out the smartphone market for the next year, at a period of its most rapid growth and as the US market dramatically shifts to smartphones, driven by the iPhone, various BlackBerry models, and (perhaps) a few gPhones.

Motorola is giving up on Symbian, despite having produced a couple of highly regarded Symbian phones (the Z8, Z10). But the entire collaboration seemed jinxed. The new phones didn’t sell well. Last April, Motorola axed the crack design team they hired when they bought Sendo. And the phones were based on UIQ, the user interface that is being phased out after Nokia buys out Symbian. Finally, Symbian is not popular in the US, where it desperately needs to buck up its market share.

The P2K decision also seems a little puzzling, since that they have been trying to phase it out for years. It was supposed to be replaced by Linux — to be standardized through Motorola’s membership in LiMo — but now Motorola’s participation in LiMo appears to be finished.

The news shows that the handset division will continue its long slide towards oblivion for some time. Overall, it remains disappointing that the company that invented the handheld cellphone has lost its ability to execute on innovation. Anecdotal evidence suggests that the company is highly bureaucratic, political and without accountability for failure. It has generally poor track record on software, which is crucial for creating today’s complex consumer devices, particularly mobile phones.

When Jha joined Motorola in August to become head of the handset division, he brought with him a strong reputation for operations from his days as president and then COO of Qualcomm. It seems to me that his problems at Motorola are less about specific products, and more about fixing the culture and getting the company to execute again on bringing compelling products to market.