Motorola puts its technology up for sale

Motorola Inc. made some waves last month when top executives announced that the second-largest maker of cellular phones will start making its wireless technology available to other vendors.

Company executives told analysts in a conference call

that they intend to make the technology and designs underlying their 3G and GPRS (general packet radio service) mobile telecommunication products available to other companies to resell under their own brands. Motorola CEO Christopher Galvin positioned the announcement as an opening of doors to global manufacturing partners and as a means to try to break out of the rut the wireless industry has recently fallen into.

“Motorola’s new wireless strategy is radical and rule-changing, with the potential to redefine success in an industry now being rocked by disruptions,” he said.

But it might be something of an act of desperation, as Motorola struggles to deal with downturns in both its cellular phone and semiconductor businesses. Mobile-phone sales have weakened across the industry in recent months, and in April, Motorola reported its first quarterly loss in 15 years.

In addition to bringing in additional revenue, executives are hoping that the strategy shift could boost the adoption of high-speed 2.5G and 3G wireless services, lower the barrier to entry for smaller handset manufacturers and unseat Nokia Corp. as the No. 1 mobile-phone manufacturer.

The move indicates the newfound commodity-status of mobile phones, where the driving factors in consumer choice are now less about technical quality and more about flash and form. As a result, consumers can expect cheaper, and probably more colourful, basic mobile phones to hit the market.

With Motorola essentially selling its entire platform for making cell phones, it will now become far easier for smaller, lower-cost companies to enter the industry and focus on device design and aesthetics. Clearly, Motorola hopes that increasing the number of vendors making phones based on its designs and hardware would translate to higher profits and a larger market-share for its technology.

Motorola has provided some chips for other vendors’ cell phones in the past, but this would be the first time the company has made its entire line of chips available, along with detailed blueprints for its handset technology. The move is seen by many as a sign of a tougher market, both in handsets and semiconductors. Motorola is not the only mobile company struggling with its semiconductor business – Qualcomm Inc. announced last month that it has cancelled plans to spin off its chip unit.

Todd Bernier, an analyst with Chicago-based Morningstar Inc., describes the shift as Motorola’s attempt to kick-start sales in its semiconductor division, which, though suffering from low profit margins and industry volatility, is the world’s largest maker of chips for the communications industry.

“Not only will it augment semiconductor sales, but it could bring in a consistent flow of royalty payments from other cell-phone manufacturers,” he said.

Motorola seems to hope the new offerings would help profit margins by increasing volume. “The economy of scale really drives the semiconductor business,” said Pete Shinyeda, general manager in Motorola’s semiconductor unit, which has experienced reorganizations, layoffs and declining revenues this year.

Ray Burgess, corporate VP of Motorola’s semiconductor unit, explained the new strategy as a way to fend off increased global competition. In a conference call announcing the development, Burgess optimistically predicted that the strategy would allow Motorola to land up to one-third of the entire mobile communications market, which a Gartner Group study estimates would be worth US$35 billion by 2004. Burgess said Motorola has already lined up one OEM and a couple of contract manufacturers but refused to disclose any names.

Does Motorola’s move put any pressure on Nokia? Nokia already licenses some of its products, such as its latest WAP browser. But if Motorola’s efforts succeed in lowering the barrier to entry for other handset manufacturers, especially in Asia, it can’t be good news for Nokia.