Will Motorola Win The Mobile Phone War?
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During the next few weeks tens of thousands of mobile phones will be sold in Australia. One Company Motorola is taking a big punt on a brand new phone called KRAZR to lift sales at a crucial time.

This week SmartHouse will post a review on the new Motorola KRZR mobile phone. Does it stack up and is it a breakthrough phone? Well you will have to wait for that but I am certain of one thing and that is, it will contribute to Motorola’s bottom line in a big way during the next quarter which is one of the peak buying periods of the year.

The holiday season is always a crucial time in the mobile phone business, and this year it’s even more so for Motorola who last quarter stumbled leading some market watchers to wonder if the Motorola’s RAZR-led renaissance is ebbing.

Plus, key Motorola competitors have found success in recent months with their own sleek and fashionable phones. But the facts are that the RAZR still has an edge, dominating the mobile-phone market two years after it was released. And Motorola is unleashing several new phones, led by the closely watched KZR which Telstra says is a “top selling” phone.

“A lot more eyes will be on Motorola for the fourth quarter because a lot of people are wondering if the engine is out of steam,” said Ed Snyder, a stock analyst with Charter Equity Research.

James Faucette, an analyst with Pacific Crest Securities, concurred. “It was always going to be a closely watched quarter, but the third-quarter results have magnified that focus,” he said.

Of course, while Motorola watchers will be looking for hints of holiday sales trends in December, full-quarter results won’t be out until mid- to late January.

Motorola’s third-quarter profit was in line with forecasts. But its mobile-phone shipments were at least 2 percent below both Wall Street’s and the company’s expectations.

Whatever the cause, Motorola’s stock fell about $1, to $23.35, following its third-quarter announcement in late October, and since has drifted lower. It closed Wednesday at $21.47, down 45 cents and off 6 percent in the past two days.

Lehman Brothers on Tuesday lowered its target price for Motorola’s stock to $27 from $30. Lehman analysts concluded Motorola may be facing “headwinds” in meeting Lehman’s high-end sales estimates for the fourth quarter.

Then on Wednesday, Lehman unloaded 34 million shares of Motorola, about $743 million in stock, Bloomberg News reported. The third quarter marked Motorola’s most significant slip, at least in terms of gaining market share, in two years, according to IDC, a market research firm.

Motorola’s global share of the cell phone market slipped to 21.1 percent from 22 percent in the second quarter, according to IDC. Motorola says it retained its 22 percent share, with spokesman Alan Buddendeck calling such calculations “an imprecise science.”

Motorola’s market-share gains have been a big story in cell phone circles in the past two years. When the RAZR was introduced during 2004’s fourth quarter, Motorola’s global share was 15.2 percent, according to IDC.

 

The RAZR started out as luxury item, priced at $500 with a phone-service contract. But the price has come down steadily since mid-2005–it can be had for as low as $50–helping to propel Motorola’s share gains while driving profits too.

“RAZR just seems to have so much momentum,” said Neil Strother, a wireless industry analyst at NPD Group. “I can’t think of an iconic phone that has had so much strength for so long.”

NPD’s quarterly surveys of mobile-phone buyers show a steady ascent for the RAZR.

In 2005’s third quarter, the RAZR was the top-selling U.S. phone, accounting for 3.6 percent of all sales. A year later, RAZR remained first, but with a 10.4 percent share, four times more than the runner-up.

Price cuts aren’t the only strategy that has boosted RAZR sales. Over the months, Motorola has trotted out the RAZR in myriad colors and with several new features, keeping the concept fresh.

But “you can’t milk RAZR forever,” said Albert Lin, a stock analyst at American Technology Research. Particularly, Lin noted, as competition intensifies, and it has.

When Motorola first sped ahead with the RAZR, some of its key competitors, most notably Samsung, lost ground. But they are gaining traction with stylish, hot-selling phones of their own, analysts said.

South Korea-based Samsung’s new ultrathin, “candy bar” shaped phones did well in the third quarter, helping it to boost market share. The Chocolate, a stylish phone made by South Korea’s LG, has been a big hit, as has Sony Ericsson’s Walkman model.

As those higher-priced phones surged, the RAZR migrated to a lower price tier, leaving Motorola with a “void,” said Daryl Armstrong, a stock analyst with Citigroup.

Motorola’s challenge now is to fill the void with a new higher-end model, and the KRZT (pronounced “crazer”) is its key opportunity.

Telstra introduced the KRZR about five weeks ago, pricing it at $98 with a two-year contract.

Motorola has released several other fashionable phones since the RAZR: the bladelike SLVR, the roundish Pebl and the Q, a thin smart phone. But none of them have been “a smashing success,” Armstrong said.

Motorola “needs another No. 1 hit,” said Armstrong, and he and others think KRZR will be it. Armstrong expects Motorola to ring up $1.7 billion in KRZR sales this quarter, about 20 percent of its mobile-phone revenue.

American Technology’s Lin is more skeptical, saying the less-expensive RAZR will cannibalize sales of the pricier KRZR.”The problem with the KRZR is that it’s just too similar to the RAZR,” he said.

Lehman Brothers’ report released Tuesday said KRZR sales were “likely a bit slower [in Europe and Asia] than expected at this stage, in large part because of the price differential with the RAZR family of products.” Still, Lehman said it remained “upbeat” about KRZR in the long term.

 

Meanwhile, another analyst report released this week by Piper Jaffray said KRZR has had “strong initial” U.S. sales.

The phone’s real test will come after Thanksgiving, when the holiday shopping season begins in earnest. And before the season is done, the KRZR is to be joined by several other new Motorola phones.

There’s the RAZR, a RAZR-like phone with a cover that slides over the keypad. There are advanced RAZRs earmarked for high-speed phone networks overseas. And there’s Motofone, an ultrathin, low-priced model aimed at emerging markets. Motorola appears this holiday season to have more new phones in more markets than usual, said Pacific Crest’s Faucette.

Part of this story is the Copyright of Bloomberg