Filed Under: ,
Tickers in this Article: MOT, GM, NOK, AAPL, GOOG, RIMM, PALM, DELL
So, is Motorola (NYSE:MOT) the General Motors (NYSE:GM) of the cellphone industry?

The company's disastrous quarter and evidence that global cellphone sales may have reached a saturation point indicate that the entire industry may now be heading towards its own "Motown Moment".

Motorola's Q4 2008 results were ghastly. The company lost $3.6 billion, compared to earnings of $100 million for the same period the previous year, as revenues dipped 26% to $7.1 billion. In other words, cellphone sales basically fell off a cliff. Meanwhile, the company sold only 19.2 million handsets, down a whopping 53% from a year earlier. In addition, Motorola announced plans to suspend its dividend and lay off 3,000 workers from its cellphone unit.

Were Motorola's plunging sales numbers a case of really bad execution by one company or an indication of a more serious malaise in the industry? The answer seems to be both.

IN PICTURES: Eight Ways To Survive A Market Downturn

Industry Sales In Permanent Decline?
According to industry tracker IDC Group, the fourth quarter was bad news for the entire cellphone industry, as global handset sales declined 13%. Motorola rival Nokia (NYSE:NOK), for example, saw its sales dip 15% during the period.

While much of the sales slump is due to the current recession, some signs suggest that the global mobile communications market has hit a saturation point in which the secular trend now points downward. (Learn where to put your money when the markets turn sour in our related articles Industries That Thrive on Recession and Four Tips for Buying Stocks in a Recession.)

Four billion of the world's six billion people already own cellphones. In once mobile-mad Europe, handset sales began trending lower even before the recession. In 2007, 191 million phones were sold in the region. According to tech industry research firm Gartner Group, that number dropped to 171 million in 2008 and is projected to fall further - to 165 million - in 2009. Furthermore, IDC does not estimate the start of a recovery until 2010.

Smartphone Key To Recovery
To turn this trend around, the industry has banked on consumers ditching their old handsets in favor of the more powerful new generation smartphones, including Apple's (Nasdaq:AAPL) iPhone, Google's (Nasdaq:GOOG) Android and Research In Motion's (Nasdaq:RIMM) latest version of its iconic BlackBerry, the Storm. The focus on this segment has become so intense that new players continue to pile into the marketplace threatening to cut the smartphone pie into ever thinner slices. Palm (Nasdaq:PALM) recently reentered the market with its new Pre smartphone and Dell (Nasdaq:DELL) is apparently developing its own mobile device.

While these companies hope that the techno-dazzle of second generation handsets will be enough to convince consumers to part with between $200 and $600 apiece, it might be a difficult sell in today's economy.

Motorola's Niche Play Strategy
Unable to find a buyer for its ailing handset division, Motorola now appears to be entering the smartphone fray - well behind the pack - with limited internal software expertise and no clear partnership opportunities. According to co-CEO Sanjay Jha, the solution may be to downsize the operation to focus on producing a high-end product that would run on the Google-backed Android operating system. At this juncture, a niche play strategy probably makes the most sense for Motorola.

The Bottom Line
Going small into a specialty may help stem the bleeding at Motorola's handset division, but it certainly will not restore the company to its once dominant position in the global handset market. If industry sales numbers continue to tank, Motorola could wind up on the critical list. However, if sales turn around, Motorola still will hold too small a piece of the pie to make it a worthwhile play.

comments powered by Disqus

Trading Center