Motorola warned this month that the quarter is going to be bad, and I want to be honest that I did not expect to be proved right this quickly or this comprehensively.
What I wrote last April was that a company whose entire competitive position rested on one silhouette was running a clock it could not see. The mechanism I described was that the Razr would keep getting cheaper until it was free, that Motorola would answer by making more Razr-shaped things, and that when taste moved there would be nothing underneath. That is more or less exactly what the warning describes, except it has arrived as a margin collapse rather than a demand collapse, which is the more insidious version.
Here is what actually happened. The Razr did not stop selling. It stopped being worth selling. A phone launched at around five hundred dollars is now given away on a contract, and Motorola has been buying share by discounting into a product line it could not differentiate, because every one of those products was the same idea at a different aspect ratio. Volume held up. The average price per handset did not, and in a business with Motorola’s cost structure that is the number that decides everything.
The strategic hole is the one I keep pointing at and it is now visible in the accounts. There is no software platform. The Q runs Microsoft’s operating system, the feature phones run an in-house stack nobody enjoys, and there is no reason for a customer who liked one Motorola to buy the next one beyond liking how it looks. Nokia has Symbian and a portfolio spanning every price point. RIM has the mail. Motorola has industrial design, which is a real asset and is also the one that depreciates fastest.
The immediate beneficiary is Samsung, which has spent three years quietly executing the boring version of this business: phones at every tier, respectable design, nothing remarkable, enormous volume. I wrote last month that Samsung’s weakness is software and its strength is that it makes half the components in the industry. Neither of those has changed. What has changed is that the company directly above it has stumbled, and second place in this market is now available to whoever wants it.
Whether Samsung takes it depends on nothing more complicated than continuing to do what it is already doing while Motorola sorts itself out. That is an unglamorous way to gain a hundred basis points of share and it works.
The part I am genuinely unsure about is whether Motorola can be fixed by the people currently running it. The obvious move is to buy or build a software platform, and that takes years the share price will not grant. The other obvious move is to cut hard and become a smaller, profitable handset maker, which is sensible and is not what anybody at a company that recently held twenty per cent of the market wants to hear.
I took no pleasure in the April prediction and I take less in this. The Razr was the best looking object anybody made this decade and the company that made it has spent two years proving that is not a business.