Can Motorola Follow the Palm Path?

On a bit of Deja Vu, the conscious feeling, not the forgettable Denzel suspense film, Motorola (MOT) is attempting to pick its phone company off of the balance sheet floor with an attractive new handset. Investors have just seen this same story with PDA legend Palm (PALM), as it used hype from its Pre handset unveiled in January of this year to move the stock from $4 to $14 and save a business that was clearly heading in the wrong direction.

The battle in the smart phone marketplace is very heated, with entrenched competitors Apple (AAPL) and Research In Motion (RIMM) slowly gaining market share, but gathering much of the mind share, and more importantly most of the profit margins. Recent stats show those two juggernauts grabbing just 3% of the overall cellphone market but an astounding 35% of all industry profits. And for good reason, the companies sell very expensive but heavily subsidized attractive smart phones.

Motorola, which has been in dire financial shape quarter after quarter for what can only be described as forever, hasn't had a hit in the cell phone space since its popular RAZR handset, and is desperately trying to compete in the profitable smart phone segment. By gutting through a lot of the company, and doing away with historically bad Motorola interfaces, the company turned to Google's (GOOG) upstart Android platform for its resurgence.

Android, by all accounts is gaining significant traction since the first HTC handset launched nearly a near ago. The platform has been featured in 3 additional phones headed in the U.S. thus far, and rumors peg the number of Android handsets at 20 into 2010. This contrasts with the handful of RIM models available and the 2 current selling versions of Apple's iPhone. Motorola is betting with a lot of the industry that the free Android platform can eventually be as compelling and competitive in an industry feeling the need for consolidation in what is becoming an age of mobile applications.

If your phone doesn't have applications available, it's simply not as good, and the beauty of Android, as far at Moto is concerned, is that it doesn't need to worry about pumping resources to create an application hub. The reach of Google is already doing just that, granted it is nowhere near the size of Apple's AppStore, but Android does boast the 2nd biggest mobile application catalogue. Nothing to scoff at.

Enter the Motorola Cliq, the world's first social phone, as the company claims. The phone is built on Android, but Moto's designers have layered an interface that directly ties in a user's Facebook, MySpace and Twitter contacts and status information. The social aspects of the phone are sure to resonate with a younger smart phone-buying public and Motorola has shown it can indeed build something of higher quality.

Will the phone be able to compete in the space? Sure, but will it gain any significant market share? At least one analyst seems to think so, as a note was published putting 4th quarter Cliq sales at about 750,000 or an estimated 5% of Moto cell sales. Five percent may not seem that significant, but with a hefty subsidy, Motorola could start to see some real revenue from its new headlining handset. And after all, Moto essentially bet the company on Android less than a year ago, so we're guaranteed to see several handsets leveraging the new interface.

While specs are impressive, price will be a key differentiator for consumers. In the age of the $99 iPhone 3G and the higher capacity $199 iPhone 3GS, it is sheer lunacy for other players to think they can charge more and gain any sort of traction with consumers. Thus far though, Investors are jumping in and believing in the robot that will eventually have come to save Motorola from the brink. Shares are up 7% and gained more than 10% since the device was officially announced. Here we go again?

Disclosure: Author owns AAPL, GOOG

Comments

[Yagottabe K...:]

T-Mobile "leaked" a web page showing the price for the Cliq was "Free" with contract. The page was pulled fairly quickly. Was that the ACTUAL price? It makes sense to this reader since the Cliq =is= a low-end smartphone ala the Centro (though with contemporary low-end features, not year-old low-end features). I think this business is just now getting interesting. Of course, free smartphones could be game changers entirely, causing low margin pressure on competitors...like Palm and its to-be-released Pixi.

Sep 13 07:48 AM

[mollytjm:]

i'm not so sure Palm has actually saved itself...it's too early to tell. The Pre doesn't seem all that popular and Sprint is not exactly a favorite. Motorola has a bit of an advantage...they can sell over various carriers. i owned the first flip phone they made and my husband owned the first Treo.... but we both have iPhones and would be hard pressed to give them up. Apple consistantly innovates...something lacking in Palm over the years. It'll be interesting to see if either of the other companies can manage to keep up with fast changes. Apple has proven it's ability.
Long APPL

Sep 13 10:56 AM

[crazyprof:]

Yaottalble, why do you say motorola cliq is a low end smart phone? In what way? It does everything what iphone does and more. Excellent aggregation of data, Very good quality 5MP camera and an excellent camcorder. Has a keyboard and all that android stuff..... I am not sure why you said its a low end phone. Who is buying 99 iphone when you have 199 iphone with all the extra features. I have used the CLIQ in the launch and came out happy. I am a heavy iphone user and was comparing the delta, but there is none, infact motocliq did more things. Information aggregation is very very cool.

Sep 13 11:52 AM

[Yagottabe K...:]

I call it a low-end phone because Motorola called it a low-end phone...and in the same breath mentioned the high-end phone was going to be introduced in a couple/few weeks. And, of course, we have STRONG evidence with that "leaked" T-Mobile web page that low-end pricing is coming for the Cliq.

[could the T-Mobile page have simply been a bogus-pricing placeholder? Of course, but we literally have NO evidence of that. As such, the BEST evidence we have right now is the Cliq is going to be "free' with contract - that's "low-end" (not low-functionality) pricing]

Sep 13 01:56 PM

[Yagottabe K...:]

[This is a clarification post]

When I type "low-end" above I am NOT talking about functionality but instead "place in the lineup". Motorola, if they are indeed pricing the Cliq "free" with contract, is setting a new standard for smartphones that ALL the other manufacturers will have to beat. The Cliq is wonderfully functional and includes Motorola's Motoblur which aparently is a better-implemented act-alike to Palm's Synergy - a REAL slap upside their corporate head.

Sep 13 01:59 PM

[crazyprof:]

Agree, I guess Motorola is trying to under promise and over deliver. As far as pricing is concerned, it could be that they want to gravitate new customers towards them. T-mobile is not regarded as leading carrier. Pricing the phone in par with iphone or Palm would not be a smart idea. When they say a more powerful phone is coming for some other carrier, it does not in anyway mean that this one is low end. Being a former Motorola employee, and now one of their competitors, I wish them well and hope they get their acts together.

Sep 13 03:36 PM

[paulbip:]

The PALM business is on life support. It's death has been delayed by hype.

Sep 13 08:26 PM

[FreeRange:]

And that would be an extremely stupid move. Handset makers seem to enjoy racing to the bottom with their pricing, supported by the carriers. It is these pricing schemes that have destroyed the perceived value of handsets, and ruined the brands in the process. In fact, it is the carries that are the commodity, yet they have flipped this around so it is the handsets that have no perceived value. This is what happens when you give something away for free! Then when you innovate, and add many new features and functions, consumers still expect it to be free. How about if Motorola et al sell their handsets for what they are actually worth, and if the carrier really wants your business, let them give you 6 months of free service with a two year contact! And now the carriers are setting plans to destroy the netbook/laptop market the same way.


On Sep 13 01:59 PM Yagottabe Kidding wrote:

> [This is a clarification post]
>
> When I type "low-end" above I am NOT talking about functionality
> but instead "place in the lineup". Motorola, if they are indeed pricing
> the Cliq "free" with contract, is setting a new standard for smartphones
> that ALL the other manufacturers will have to beat. The Cliq is wonderfully
> functional and includes Motorola's Motoblur which aparently is a
> better-implemented act-alike to Palm's Synergy - a REAL slap upside
> their corporate head.

Sep 14 01:19 AM