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iPhone and the Future of Motorola

Posted on Thursday, Apr 26th 2007

We have concluded in previous posts that the iPhone is positioned, long term, against laptops, not phones, and its key strategic advantage is the presence of the full scale Mac OS on it.

So what is Motorola’s situation against this backdrop?

Like other top handset vendors, Motorola’s cellular handset business is thriving around the world, but is suffering under tremendous margin pressure. They need more products in the highend. Translation, they need a better position in the SmartPhone / Convergence Device segment.

According to ABI Research, Nokia has maintained its leadership position with a 56.4% share of the 70.9 million units shipped in 2006. Nokia sold 40 million smartphones in 2006, compared to 28.5 million in 2005. Motorola also had a strong 2006 and occupied the second position with 8.5% market share, driven by the success of its Linux-based devices in China, most notably the MING. Now, will the MING be able to replicate its success in India, Brazil, Latin America and other growth markets where, also, Motorola needs not only growth, but margin expansion?

Symbian’s strong position in the smartphone operating system market is under continued and increasing threat, and its chief sponsor, Nokia, is starting to hedge on Linux. Even in China, Linux is edging up on Symbian, offering Motorola a good opportunity against its chief rival, Nokia.

China consumed 15 million smartphones in 2006, up from 10 million units in 2005, resulting in more than doubling of smartphone revenues, according to Chinese market research firm CCID. Symbian controlled 63.2 percent of the market, followed by Linux (30.3 percent) and Windows Mobile (5.4 percent).

So, let’s ask the OS question on Motorola’s strategy vis-a-vis the convergence device. Is it Linux or is it Windows Mobile?

For the foreseeable future, they really need to play both. Looking further out into the future, given that they have good presence and gaining market share in both Linux-based and Windows Mobile-based Smartphone markets, they should avoid the detour of acquiring a Palm or a RIM. Whereas Dell needs an interim, educating step handheld by an experienced vendor, Motorola is experienced enough to be able to walk straight into the future that the iPhone is driving the industry towards.

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