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Motorola cutbacks reflect Google’s challenges in becoming as profitable as Apple

Motorola Droid Razr

Motorola Droid Razr

Google is reducing the headcount at Motorola Mobility by 4,000 and closing a number of its facilities in a move that suggests the deal was more about patents than trying to compete head on with Apple.

The cutbacks, including plans to consolidate or close about one-third of Motorola Mobility’s facilities, were revealed a recent filing with the Securities and Exchange Commission. The search giant also said it plans to simplify Motorola’s product portfolio, shifting emphasis from feature phones to more innovative and profitable devices.

“This was on the cards and confirms ‘Motorola’ buy was more of a ‘patent play’ rather than getting into hardware business and competing with or upsetting its OEM partners,” said Neil Shah, senior analyst for the global wireless practice at Strategy Analytics, Newton, MA .

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“Google thus instead of pumping money to revive Motorola, is shying away which Motorola would have expected,” he said.

“Google has so far shown no interest or even contributed in together leveraging Motorola’s hardware and Google’s software expertise to produce some revolutionary Google Nexus or even Motorola branded devices. As a result, it will be difficult going forward for Google if it aims to become as vertically integrated and profitable as Apple.”

Patent play
Motorola has been struggling with profitability for some time and already has a limited presence beyond the United States, China and Latin America markets. The cutbacks announced by Google will only further limit Motorola’s ability to grow and expand to newer markets.

There has been much speculation about what Google’s intentions are for Motorola ever since the pending acquisition was first announced last year. The deal was closed this spring.

With Google’s Android mobile operating system facing frequent assaults on the legal front via patent infringement litigation brought by Apple and others, many thought that Google had decided to purchase Motorola – which has a significant mobile patent portfolio – to bolster it standing in these matters.


Google is focusing on creating flagship Android devices, such as the Nexus 7 tablet, made by Asus

However, with Apple’s success as vertically integrated company in mind, some also wondered if Google would make a play for a significant role as a hardware manufacturer. The problem with this theory always was that it puts Google in direct competition with its existing hardware partners building devices on the open Android system.

The news about the cutbacks would seem to suggest that the patent play may have been Google’s bigger reason for buying Motorola after all.

Flagship devices
The moves also suggest that rather than trying to improve Motorola’s market share, Google will use Motorola to bring out devices designed to showcase what the latest Android software is capable of.

“My view is that what we are seeing is consistent with Google using Moto to float reference designs like the original ‘Google Phone’ or Microsoft's Surface in the tablet space,” said Wally Swain, senior vice president of research at Yankee Group, Boston. “The company is being cut back to the essentials to produce an annual ‘flagship’ to correspond to new Android releases.

“It might also produce a mid tier and/or low tier to demonstrate what can be done with lower specs,” he said. “There is probably no intention to be unprofitable but neither is there an intention to improve market share dramatically from where it is today.

“The constant pressure that Google will feel from important Android vendors like Samsung, LG, Sony-E and HTC for Motorola not to eat their lunch means that management will have a tricky balancing act between being profitable but not too profitable or too large.”

What is not clear from the announcement is what functions are being but besides feature phones.

The reduction in handset manufacturer’s headcount by 4,000 out of a total of about 20,000 employees will mostly be felt outside of the United States, where two-thirds of the cutbacks will occur.

According to Google, the changes are designed to return Motorola’s mobile devices unit to profitability. Motorola lost money in 14 of the last 16 quarters. While the company expects significant revenue variability to continue in the short term, these steps are being taken to help Motorola reach sustainable profitability.

"While we expect this strategy to create new opportunities and help return Motorola's mobile devices unit to profitability, we understand how hard these changes will be for the employees concerned,” said Niki Christoff, a spokeswoman for Google, Mountain View, CA. “Motorola is committed to helping them through this difficult transition and will be providing generous severance packages, as well as outplacement services to help people find new jobs."

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York

Associate Editor Chantal Tode covers advertising, messaging, legal/privacy and database/CRM. Reach her at chantal@mobilemarketer.com.

 
Related content: Manufacturers, Google, Motorola Mobility, Android, Strategy Analytics, Neil Shah, Yankee Group, Wally Swain, mobile marketing, mobile

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