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Motorola's smartphone future in China put on hold

by Melissa Aparicio and Alexa Harrison
Jan 19, 2010

Motorola Inc.’s plan for gaining cell phone dominance in Asia has become uncertain with Google Inc.’s possible departure from the China market.

If Google pulls out, new Motorola cell phones based on the search engine giant’s Android operating system and targeting Chinese consumers would likely not feature Google services and applications—a key selling point.

Google announced Tuesday it would postpone the launch of two Android-based smartphones for telecommunications provider China Unicom Ltd., including one of Motorola’s anticipated models.

“It’s just another roadblock in a long series of roadblocks for Motorola,” said Sam Wilson, an analyst with San Francisco-based investment banking and brokerage firm JMP Securities LLC.

The postponement comes on the heels of an earlier announcement by Google that it is considering a departure from the China market after hacking incidents involving the Gmail accounts of Chinese human rights activists.

Motorola’s struggling Mobile Devices segment has seen a steady decline in its global handset market share, dropping to 4.7 percent in the third quarter of 2009 from 8.4 percent in the third quarter of  2008, according to data from market research firm Strategy Analytics. By contrast, first-place Nokia Corp., headquartered in Finland, had a 37.3 percent share of market in the third quarter of 2009.

China, with the world’s largest mobile subscriber base, is a critical part of the Schaumburg-based company’s strategy to regain market share in cellular handsets. Wireless data revenues in that country were an estimated $19.3 billion as of the 2009's third quarter, up from $16.3 billion during the same period in 2008, according to El Segundo, Calif.-based market research firm iSuppli Corp.   

“In China, Motorola plans to release five or six Android-based phones, which is quite a number. The phones play a central role in [Motorola’s] China plans. It’s possible they can revamp the plan, but, at the very least, it will take some time,” said Tero Kuittinen, an analyst at Greenwich, Conn.-based equity trading and research firm MKM Partners LLC.

“Motorola definitely needs the China strategy to work,” he added.

Both Kuittinen and Wilson said the decision to rely on Google’s operating system was always risky. Most of Motorola’s competition such as Apple Inc.’s iPhone 3GS, Research in Motion Ltd.’s Blackberry and Palm Inc.’s Pre, all utilize proprietary hardware and software.

“No vendor that splits hardware from its operating software has been successful,” Wilson said, “but [Motorola] had no choice.”

According to Matthew Thornton of brokerage and research firm Avian Securities LLC, headquarted in Boston and New York, Motorola had limited options from which to choose.

“Android was the one with momentum and strong sponsorship other than shutting the division down,” Thornton said adding he doesn’t believe Google’s departure will negatively impact the growth of Android-based phones.

“In the near term, I still think that if Android is going to continue to grow the way that it has, then everyone in that eco-system will benefit.”

Tuesday’s postponement did not seem to deter Motorola’s decision to move forward in the Asian market.
“Motorola is proud of our partnerships with…China's mobile network operators, and we are working closely with all of them....,” a Motorola spokeswoman said Tuesday in an e-mail statement.

“Android is now the fastest-growing mobile platform in the world, and we look forward to continuing to bring the power and promise of the best of these devices to China.”