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Motorola Faces Uncertain Destiny with Google

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"It's like, thanks for everything you did in the 20th century, but you're being bought by a search engine," said Roger Entner, a telecommunications industry analyst and founder of Recon Analytics, a market research firm. He added, "Nobody ever buys a company and leaves it alone."

Motorola traces its beginnings to 1928, when two brothers, Paul and Joseph Galvin, started a company making power converters for household radios. In 1947 it changed its name to Motorola, after its popular car radio brand. The company produced radio phones that helped American troops communicate in World War II, car phones in the 1980s and the trend-setting MicroTac and Razr cellphones, among other products.

But in recent years, after the Razr's popularity faded, Motorola flirted with financial doom. It was only in the past few quarters that it came back under the leadership of Sanjay Jha, a former executive at Qualcomm, a telecommunications equipment maker, who joined Motorola in 2008 when it was in danger of missing the rise of the smartphone.

He made significant changes, cutting thousands of employees and splitting the business in two: Motorola Solutions, which sells equipment to businesses, and Motorola Mobility, which handles consumer products like phones and television set-top boxes.

Motorola Mobility scaled back distribution in Europe and much of Asia, focusing its efforts on China, Latin America and North America. It emphasized fewer phone models and hitched its fortunes to Google's Android software.

In the company's second quarter this year, it reported revenue of $3.34 billion and a profit of $26 million. That was up from revenue of $2.6 billion and a loss of $87 million for the period a year earlier.

And the company shipped 11 million devices in the quarter, up from 8.3 million in the period a year earlier. Most of the increase came from smartphones -- to 4.4 million, from 2.7 million in the period a year earlier.

The company has been producing products that dazzle gadget fans - - no easy feat when taking on the iPhone. During the Consumer Electronics Show in Las Vegas in January, Mr. Jha wowed audiences with the Motorola Xoom, a tablet computer than many considered to be the first real contender to Apple's iPad.

But the shipment numbers still pale in comparison with, say, the second quarter of 2006, when Razr sales were soaring. Motorola shipped 51.9 million of them that quarter. That was just before the phone's price and popularity began to slip, dragging Motorola's fortunes down with it.

Lawrence Harris, a senior research analyst with C.L. King & Associates, an investment bank, said the mercurial nature of the phone business might wind up feeling very foreign to Google -- and challenging. He said he was also not sure that Google had put that much thought into what to do with the physical manufacturing, the distribution and the sales staff. Even further afield for Google is Motorola's involvement in making television set-top boxes, a modest part of its business.

"The priority is the patents," Mr. Harris said, noting that the acquisition had come together quickly, suggesting that Google had not had time to devise its entire strategy. "Then they'll have to address how to get their arms around manufacturing."

In announcing the deal, Larry Page, Google's chief executive, said that the two companies would "create amazing user experiences that supercharge the entire Android ecosystem."

Kevin Smithen, an analyst at Macquarie Capital, said Google might eventually sell the phone and set-top businesses. Motorola would be "pared down if Google goes in that direction," he said.

But others say Google has the chance to help Motorola grow. Carolina Milanesi, an industry analyst with Gartner, said Google's ample pocketbook could help Motorola return to former glory by expanding in places like Asia and Europe, and also by helping it sell lower-cost smartphones that might appeal to a mass market.

Gartner's research puts Motorola's 2010 share of the mobile phone market at 2.4 percent, down from 4.8 percent in 2009, though Ms. Milanesi noted that more profitable smartphones were making up an increasing share of Motorola's sales.

"Money from Google could get them back, if not where they were, to a more prominent role," she said.



Source: (C) 2011 International Herald Tribune. via ProQuest Information and Learning Company; All Rights Reserved


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