With Motorola, it is not a single event that brought about its demise but a collection of unfortunate ones. Motorola was once the largest mobile phone manufacturer before Nokia dethroned it in 1998. But at that time, Motorola was working on an interesting project through its spin-off, Iridium SSC. Iridium’s goal was to launch space satellites to connect the world with its wireless phone service. Sounds a lot like Elon Musk’s SpaceX Starlink right? However, after having spent 5 billion dollars, Iridium filed for bankruptcy in 1999.
At the time, the company was struggling to get customers on board because its handset and talk time would end up costing way more than available products. Motorola ended up writing off 2.5 billion dollars on that investment. Since the bankruptcy, creditors from Iridium were seeking 4 billion dollars in damages against Motorola, alleging breach of contract. Although Iridium creditors won 300 million dollars from Motorola in 2002, the later trials were settled at no cost to Motorola in 2008.
Motorola, Inc. was an American multinational telecommunications company founded on September 25, 1928, based in Schaumburg, Illinois. At its peak, Motorola had 150,000 employees. After Iridium’s bankruptcy, Motorola started a string of worldwide layoffs. By the end of 2004, Motorola cut down its workforce to around 68,000 employees. After failing to deliver on its side project, the company wanted to focus on its core operations and launched the Motorola Razr series. The Razr v3, launched in 2004, sold around 120 million units worldwide, becoming the best-selling clamshell phone.
Shortly after, in 2005, Motorola partnered with Apple to launch the Rokr E1, which connected with Apple’s music store. However, when Apple launched its iPhone in 2007, Apple discontinued the partnership. Apple’s first iPhone in 2007 changed the whole industry dynamics. It was a do or die moment for incumbents and Motorola suffered the most. Its market share dropped from 21% in 2006 to 2% in 2011. And from 2007 to 2009, it was reported that Motorola lost 4.3 billion dollars.
In hindsight, we can observe one key learning outcome. Apple spent all of its resources in perfecting one phone whereas Motorola was working on dozens of phone models at once. Apple also quickly caught on the shift from hardware to software driving the mobile phone industry. It thus poured a lot of its energy into design, while Motorola failed to do so.
In October 2009, Motorola introduced Droid, a smartphone designed to compete with the iPhone. Although the Droid was selling well at first, it simply was not enough to compete with the new wave of smartphones. Competitors such as Samsung and LG were getting a better handle on what customers wanted.
The primary reason behind Motorola’s fall from grace is the same as for every big company that ever crumbled – inertia and inability to keep pace with the changing market dynamics. Motorola’s star performer, Moto Razr V2 sold over 130 million units. When it came out it was the talk of the town due to its sleek design. Everyone wanted one. But the modern consumer is a fickle-minded adulterer. They have no loyalty. They will switch relationships in a second if they are getting a better deal elsewhere.
So to constantly lure them, you need to be well ahead of the game and be apprised of what they need. Sometimes, even they don’t know what they need. So, you need to figure it out for them and then offer it to them.
After looks and slim, metallic phones, people got bored. They wanted something extra. Then came along Blackberry with the terrific email client service, iPhone with its gorgeous design appeal and Android with it’s open community standards and rapidly improving ecosystem. While BB stuck to the old faithful keypad, iPhones and Android phones were customized for touch which has finally proved to be the next big thing. Moto didn’t evolve – it’s later versions were minor improvements over the existing ones. They didn’t adapt quickly and went extinct.
In 2011, Motorola was split in two, Motorola Mobility and Motorola Solutions, with the former being focused on consumer devices. Google bought Motorola Mobility for 12.5 billion dollars in May 2012, which represented a 63 percent premium over the stock’s market price. Google’s aim was to get a hand on Motorola’s 17,000 patents. The rationale behind it was that owning these patents would help Google protect its Android operating system from infringements. There was also the potential for licensing revenues by pooling patents and leasing them to competitors.
Google thought it could build on Motorola’s core like it did with YouTube and Android. However, in 2014, Google sold Motorola Mobility to Lenovo for 3 billion dollars. And one might ask, why would Google sell a company for 25% of its original acquisition price. At acquisition, Google inherited Motorola’s 3.2 billion dollars in cash and 2.4 billion in deferred tax assets. In April 2013, Google sold Motorola’s home set-top box division to Arris Group for 2.35 billion dollars. In the sale to Lenovo, Google kept Motorola’s patents that is valued at 5.5 billion dollars. Even if we account for Motorola’s 2 billion dollars in operating losses during that time, Google certainly did not lose 75% of its investment on that acquisition. It is to note that we did not consider any impairment of Goodwill in this analysis.
In India, once a popular player in the affordable and mid-price segment in the country, the company’s phone business is slipping as competition from its Chinese counterparts mount. According to Counterpoint Research, Motorola India’s smartphone shipments declined 70 percent year-on-year (YoY) in 2019-20. The brand sunk from sixth spot in 2018 to 12th in the market in 2019.
“Motorola shipments declined due to the competitive product portfolio of Realme and Xiaomi. Motorola did not refresh its portfolio as compared to other Chinese players which were offering better specifications at competitive prices,” Karn Chauhan, Research Analyst at Counterpoint Research.
Lenovo did a good job of using Motorola’s infrastructure. Its Moto G series has sold over 70 million units in the last five years. And recently, it launched its revamped Motorola Razr smartphone. However, the public had greater expectations for the device given its hefty 1,500-dollar price tag. The camera, battery life, and junkware greatly hindered the consumer experience.
There were also complaints about the product’s durability. The flip phone would last only 27,000 folds on the FoldBot folding machine versus Samsung’s 120,000 folds. Motorola definitely went into a roller coaster ride the past two decades but it has a lot to offer under Lenovo. This pivoting acquisition is definitely driving Motorola in the right direction and the company might still have a few more surprises up its sleeves. The company has continued to release new phones during all the tumult, building a strong brand around its affordable G-series line. Its Moto G6 is currently listed as the second best-seller on Amazon for unlocked cellphones. The growth and profitably comes as Motorola is rumored to be prepping multiple new phone releases. A successor to the Z3 has recently been leaked and rumors continue to build that the company is planning to release a foldable Razr phone this year.