Is Motorola's cell phone revamp enough?

Handset maker is packing its old phones with new features to revive its brand and reach profitability. But critics wonder if the tactic will work.
Written by Marguerite Reardon, Contributor
NEW YORK-- Motorola is adding considerable new features to its slick cell phone designs. But critics wonder whether the new phone capabilities will be enough to light a fire under the increasingly troubled consumer electronics giant.

Motorola, the second-largest handset maker in the world behind Nokia, has been struggling to regain its footing in an increasingly competitive market for the past several quarters. For the first quarter of 2007, the company reported a net loss as prices on phones continued to plunge.

Chief Executive Officer Ed Zander, who ended a bitter proxy fight with billionaire shareholder activist Carl Icahn last week, was on hand at an event here Tuesday to show off the company's five new handsets. Zander has been promising a new set of products that will help the company regain profitability.

Motorola's latest products, which will all be available this summer, clearly take the company in a new direction. Instead of concentrating solely on style and design, it has added more functionality such as 3G, or third-generation, network support and multimedia features.

But critics say Motorola's new products are nothing more than souped-up versions of devices the company has already been selling. Four of the phones highlighted Tuesday, in fact, were new versions of existing products.

New Moto phones

"While we are encouraged with the company having introduced 3G, feature-intensive devices, we question the ultimate success of these devices given the lack of traction for the company's Krzr phone," Bill Choi, a senior analyst at Jefferies, said in a research note published Tuesday.

As expected, Motorola introduced the follow-up to the popular ultrathin Razr with an even thinner phone called the Razr2. The Razr has been one of the best-selling cell phones on the market since it was introduced in 2004. Motorola expects to sell its 100 millionth Razr in the next few weeks, Zander said.

While the Razr franchise has helped Motorola increase its market share over the past couple of years, the company's executives have been criticized for commoditizing the product by allowing mobile operators to slash prices on the phone to entice subscribers to sign up for service. Today the Razr is available from every major carrier in the U.S.

But Zander clearly believes the Razr brand is strong enough to continue anchoring the company's product line.

"The Razr is more than a product, it's a brand," Zander told reporters and analysts at Tuesday's event. "When I reach for a tissue, I grab a Kleenex. When I order a soda, I say I want a Coke. And even when I talk about an MP3, I call it an iPod. The Razr is also a brand, and we will market that for years to come."

"Going forward it will be far less about one particular product. Instead it will be a suite of products that defines our brand."
--Jim Wick, Consumer Experience Design group, Motorola

Zander said the next-generation Razr, the Razr2, is slimmer, sleeker, stronger, smarter and yet simpler and more stylish than its predecessor. The device comes in two versions: the V9 for GSM networks and the V9m for CDMA versions.

While Motorola improved the Razr's design by making it even slimmer and also made it more rugged, the real difference between the old and new Razr is on the inside. The new phone supports a full HTML browser that enables Web surfing even on non-WAP enabled sites; a faster 500MHz processor and USB 2.0 support for faster music downloads and PC syncing; video conferencing capability; and new voice technology called "Crystal Talk" that will adjust the volume of the voice call based on ambient noise. The Razr2 is expected to be available on all major U.S. operator networks later this summer.

While the Raz2 packs an impressive array of functionality into an improved design, analysts are skeptical that it will have the same impact on the company as the original Razr.

"Motorola sorely needs a hit or several iterations of success to turn around its mobile-handset division, which despite strong unit growth, is suffering from a lack of profitability," Mark Sue, an analyst for RBC Capital Markets, wrote in a research note to investors. "The reception for the Razr2 may be decent since a market exists for a sequel. (But) it may not be enough to enable significant market share gains."

Motorola executives also emphasized the company's breadth of devices. They seemed to recognize that relying solely on one product, such as the Razr, is dangerous.

"It's important to remember that Motorola invented thin phones," said Jim Wick, vice president and director of the Consumer Experience Design group at Motorola. "And we will continue to do thin. (But) going forward it will be far less about one particular product. Instead it will be a suite of products that defines our brand."

As part of this new product suite, Motorola announced new versions of its music phone, the RokrZ6; the Motorola Q and touch-screen Ming smart phones, which until now had only been sold only in Asia; and a new multimedia phone called the Z8.

Motorola has been selling other versions of its Rokr phone in Asia, and the Z6 was actually shown earlier this year at 3GSM in Barcelona and CTIA in Orlando. The Z6 has a built-in music player with "drag and drop" music syncing, a 2-megapixel camera, USB 2.0, a slider form factor, a Linux platform and stereo Bluetooth. Motorola also showed off the Motorola S9 stereo Bluetooth headset, which allows people to listen to music without using wires to connect to the device.

This phone, along with the new Z8 referred to as the "media monster," has a kick-slide form factor that cradles to the head. It was first shown at 3GSM in February. The phones feature a 2-megapixel camera, HSDPA support, a video player, videoconferencing, world phone support, a 16 million-color display and 90MB of internal memory. What's more, the phone will be able to play full-length movies from SD cards and show video at 30 frames per second (the same as on a standard TV). Motorola announced that it has already struck deals with Universal Pictures, Sony Pictures and Warner Brothers.

The RokrZ6's and Z8's music and multimedia features clearly pit these devices against competitors, such as Sony's Walkman phones and the upcoming iPhone by Apple. But while the iPhone will initially be available in the U.S., Motorola's music phones won't be available in North America anytime soon. The Rokr Z6 will launch this summer in Europe and Latin America. And the Z8 will be available this summer in Europe and Asia. The company did not mention U.S. launch dates.

"With our music devices, we are poised to make much more of a worldwide impact," Zander said in a short interview after Tuesday's event.

Meanwhile, Motorola hopes to compete against the iPhone with its lineup of smart phones. The company showed off the Motorola Q 9, the latest version of the QWERTY keyboard phone that competes head-to-head with BlackBerry devices and Samsung's Blackjack.

The Q 9 will run Windows 6 and support 3G HSDPA networks for data speeds up to 3.6Mbps. Executives even went so far as to call the phone the fastest smart phone device on the market. Motorola also added seven new buttons to allow for easier access to functions like camera and music player.

But competition is heating up, especially as Apple gears up to launch the iPhone in June. Nokia, Samsung and Sony Ericsson, which already have a significant lead over Motorola in terms of 3G and multimedia phones, are also expected to introduce new products.

Nokia is feeling so confident about its prospects that it said Monday it expects to gain market share in the second quarter. The company had reported in April that its share of the worldwide market would likely remain unchanged at 36 percent. But now the company says it believes that excess inventory, which had flooded the market most likely from Motorola, will be sold off during the quarter. As a result, Nokia expects its worldwide market share to get a boost.

"We continue to believe it will take several quarters for Motorola's handset division to get back on track," Choi said. "Moreover, we believe the company will face increased competitive pressure throughout the year as Nokia, Samsung, Sony Ericsson and LG each seek to gain share while Motorola revamps its portfolio."

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