Motorola Mobility chief Sanjay Jha outlined the company's strategy on patent protection, tablets and 4G, but also strongly hinted that the first quarter arrival of Apple's iPhone at Verizon Wireless could hurt the first quarter.
Jha, speaking at a Credit Suisse investment conference late Wednesday night, delivered his remarks just a few hours after Motorola made its split official.
In a nutshell, Jha said:
- Motorola Mobility will be aggressive with its patent portfolio---16,500 awarded patents thus far.
- Motorola Mobility believes tablets are an important category and that software will be the differentiator. However, ultimately the smartphone will be the computer.
- The potential arrival of the iPhone at Verizon---Jha referred to it as "a competitive dynamic developing there"---could hurt Motorola Mobility's first quarter. In any case, Motorola Mobility will lose money.
- 4G devices are on tap "early next year" and Motorola plans to be leading edge on processors. "You will see us deliver dual-core gigahertz processor in our devices."
The iPhone coming to Verizon Wireless will occupy most of the attention in the short term, but it's worth zooming out and seeing the broader strategic picture for Motorola Mobility. Here's what Jha said regarding the iPhone at Verizon:
We have an additional challenge, potentially, that Verizon-- there is a competitive dynamic developing there, which may have an impact. Given our strong relationship with Verizon, I think that that may have an impact on our first quarter. We see as a result of that potential dynamic-- We see that there will be a shift in product mix in first quarter for us. That may have an impact on our gross margin.
And we're making regular progress in diversifying our product portfolio. We are diversifying our product portfolio in the United States with broader portfolio with AT&T and Sprint and T-Mobile than we've had before. But, as a result of the timing of this diversification, we expect a loss in mobile devices first quarter. And we're making progress in diversifying a number of places, not just in US but also in increasing our revenue and profitability from China and Latin America. And, of course, as a result of tablet opportunity that comes to us, I think that that will diversify and increase our opportunity as well.
But, as I say, again, the timing of these things is such that there will be a loss in first quarter. Our loss in first quarter will be significantly improved from the loss that you saw a year ago first quarter. But I want to make sure that there's an understanding there will be a loss.
Now Motorola Mobility's home business---set-top boxes primarily---will put the company roughly at break even, but many analysts were expecting a profit in the first quarter for mobile devices. Analysts were mixed on Jha's comments overall. Some saw his comments as a negative while others came away bullish in the long run.
Here's a look at the strategy for Motorola Mobility's first quarter and beyond. Motorola Mobility's fourth quarter is in the bag and the company should be at the high-end of its 12 million to 14 million smartphone shipment range it projected at the end of the third quarter.
The plan goes something like this: Diversify in the first quarter. Jha said in addition to diversifying carriers Motorola has a bevy of new products coming. In the first quarter, Motorola will significantly broaden its AT&T portfolio. International expansion is also underway in Latin America and China. This diversification as well as growth in tablets will make Motorola Mobility profitable for the entire year.
Oppenheimer analyst Ittai Kidron said in a research note:
We believe Motorola Mobility will introduce several new devices in 1Q11, including the Olympus at AT&T, new LTE device at Verizon (Etna), and a potential 10" tablet.
Differentiate with software. Jha remained committed to Motorblur throughout his talk. He also said that software differentiation will also come to the enterprise. There were a lot of questions about how Motorola Mobility would stick out during the fierce Android competition. Jha said:
There is not one place that I can say that I will have differentiation that's sustainable over five years. If you look today, my hardware differentiation gives me hardware differentiation over six months. With software differentiation, I think I can generate software differentiation over 24 months. So I think my objective is to get to a 24-month cycle with software differentiation and then, over a period of time, create a better brand, better differentiation through distribution, and better IP position to create differentiation and scale.
Leverage tablets. Motorola Mobility said the 10-inch tablet market is tricky under the carrier model because many will be Wi-Fi. As a result, carriers are reluctant to subsidize. Jha said that the 7-inch tablet market will be meaningful, but it's unclear what approach carriers will take regarding subsidized. Jha said:
We see 10- and 11-inch being seen as business-centric, more professional, and 7-inch more fun. And that's why I think that 7-inch actually may have quite a meaningful marketplace. 7-inch also is much more amenable to being carried in various different forms - women's handbag and so on and so forth. I find it a very useful format. So I think it's not clear how all that will play out.
In this tablet market, Jha said he was most worried about Apple, HTC and Samsung. Jha expected HP and Dell to compete too, but his smartphone rivals are the biggest worry. Jha added:
(The tablet market may) be a matter of who is capable of being at the leading edge, can differentiate their products, and can deliver services and applications which are disproportionately exciting for consumers. I think there is definitely a race to the bottom for some players. You will not see us participate in that race to the bottom. I am very focused on delivering differentiated services and applications.
Be strongest enterprise player in Android. Jha in multiple spots referred to the enterprise. He said:
In terms of enterprise, I see 40% of our consumers being interested in having enterprise capability. I just want to be clear what our enterprise strategy is. Our enterprise strategy is to make sure that our consumers buy our devices. But 40% of them want to be able to take that device to their work. And we want to make sure that CIOs see enough security and capability that they allow those devices to be brought to home. Only something like 30% of all mobile-- of all mailboxes are mobilized. CIOs don't have the capability to subsidize and pay for the 70% of other enterprise users. Those enterprise users pay for devices themselves, but they want to be able to have access to enterprise e-mail. That is our target.
Jha added that the Droid Pro is off to a good start in terms of sales. Also see: Motorola Droid Pro (photos) and Motorola's assault on RIM about to begin: 15 minutes with Droid Pro
Leverage your intellectual property. Jha said:
We will separate with 16,500 patents. We believe that we have one of the best patent portfolios as this convergence occurs between computing, media, internet, and wireless devices. We believe we're as well placed as anybody else...Really, 26,000 patents are either applied for or delivered to us. I think that that places us in a very, very strong position.
You have in the last short period of time seen incredible focus on intellectual property. We are ourselves involved in a couple of lawsuits. We feel that we are as well positioned with the revenue that we have and disproportionately large patent portfolio that we have to not only have the freedom of action but to actually make sure that our patent portfolio is respected by other players in this marketplace.
Bottom line: Motorola Mobility's strategy looks sound. The key for Motorola will be building software differentiation on top of the Android foundation in both the enterprise and consumer spaces.