Motorola shows new spirit of innovation

But Nokia upstages with Q4 upgrade

All eyes will be on Motorola to see whether it can make 2004 a recovery year under its new CEO Ed Zander. Zander himself has been low key so far, keen not to over-inflate expectations of a turnaround that is sure to be prolonged and painful. But the world’s second largest cellphone maker started the year with some interesting moves that, while small in themselves, may point to a new culture of innovation and ideas that is badly needed.

One of the greatest criticisms of Motorola under the leadership of departing CEO Chris Galvin was that it had turned its back on a history of leading innovation and was repeatedly missing key cellphone trends, making it seem fatally out of touch with market requirements.

Notable among these was its failure to recognize the importance of the cameraphone, compounded, once it did design such a device, by delivery delays that meant it largely missed the Christmas season. So it was symbolic that, after a disappointing holiday season, largely caused by this factor, the company finally shipped its camera model in bulk.

It also announced the much delayed V600 worldphone, which supports voice services in 125 countries and data services in 30, via AT&T Wireless. Critics complained that these models would have been exciting if delivered on time, but were now coming out too late for the major buying period of the year.

But other announcements in Motorola’s new year blitz were more forward looking. For instance, it said it would use smart antennas from start-up Motia to extend the range of its Wi-Fi and broadband wireless gear, and hinted that these could also be incorporated into forthcoming Wi-Fi/cellular handsets to increase signal strength. This would give Motorola, which is already leading the market in dual-mode phone plans, a significant headstart over rivals.

On the enterprise side, Motorola will bundle VPN software for the first time, emulating similar moves from Nokia which its Finnish rival cites as critical in the business sector. It will provide Certicom’s MovianVPN software in its A760 smartphone.

For consumers, its 2004 roadmap includes two gaming phones, the T725 and A835, which feature large color screens and fast downloading capabilities and target the 18-24 age group, one that falls behind other sectors of the US population in cellphone usage. The A835 also has video, camera and MP3 support.

And Motorola will also release the E380, which can be heavily personalized by the user in terms of shape and faceplates, and a range that is optimized for photomessaging.

With the exception of dual-mode, none of these plans show Motorola doing anything radical, but they do show the company finally tapping into the key trends that will drive increased sales and margins in handsets – secure enterprise communications, gaming and multimedia phones that are specialized around one consumer application.

And it is showing new willingness to experiment with leading edge technologies too. As well as the adoption of Motia antennas, this week it announced that it would be the prime partner for Apple co-founder Steve Wozniak’s latest venture, WOZ (Wheels of Zeus), which is developing a system for tracking children, pets or belongings using short range wireless, GPS and smart tag technologies. And it has taken an investment in the UK’s Magic4, whose
multimedia instant messaging platform it has already started to use. None of these is earth shattering, but the PR activity put behind them by Motorola indicates a new faith in trying out less than conventional technical approaches in a quest for differentiation.

But Nokia has got to all these markets ahead of its rival and has gone as far as to break up its Mobile Phones division into three units, effective from January 1, with specific focus on multimedia and enterprise platforms and a rich roadmap to match.

Just days after Motorola stated that it would increase its current global market share of
around 15% to 25% “over the long term” on the back of its new product plans, Nokia upstaged it in PR terms by upgrading its profit forecast for the fourth quarter following stronger than expected sales of mobile phones and network infrastructure.

Nokia’s shares leapt by 13% to €16.06 on the news, taking other mobile-related European stocks such as Infineon and Siemens up with them. The Finnish colossus said its sales for Q4 totaled €8.8bn, about the same as a year earlier, and it raised its earnings prediction from 20-22 eurocents to 24-25 eurocents per share. Sales of handsets were up by 4% year-on-year to around €7bn, representing 55.3m units.

Even allowing for Nokia CEO Jorma Ollila’s tendency to be cautious and then outperform expectations, this was excellent news for Nokia investors. The company had expected a fall in handset sales in Q4 and its share price had been depressed by pessimistic analyst forecasts.

"The strong seasonal development in both Nokia Mobile Phones and Nokia Networks exceeded even our own expectations," said Ollila in a statement. "High volumes and an excellent mix in Nokia Mobile Phones delivered healthy sales and an average selling price
that was up sequentially.”

As the year begins, these contrasting statements from the two cellphone giants illustrate Motorola’s plight – Nokia has the market share and the product line now, and is reaping the rewards even in a market where it is consistently underrated; while Motorola has to look to the future and win confidence that it can deliver on rather vague promises.

Its handset roadmap and its new willingness to take on slightly quirky technologies to gain differentiation are highly encouraging, but – as the company learned painfully with cameraphones – delivery
is all. If it does deliver on its promises this year, Nokia will have a far less easy ride in 2005.

© Copyright 2004 Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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