Looking for OEM Business? Think Motorola

Motorola Inc.’s fortunes are improving faster than the market is catching on.

While some suppliers and vendors are still apprehensive about doing business with the telecom equipment and mobile handset vendor because of its recent woeful sales performance, it is increasingly clear business partners that take a longer-term approach to corporate relationship development should start taking a second look at the company.

After four years of cost-cutting and other painful reorganization actions, Motorola is slowly but steadily reversing the downward spiral it fell into in the middle of this decade, improving its profile with investors and suppliers who at one time wondered whether pouring critical investment capital into products designed to support the company’s operations made sense.

A closer look today indicates Motorola is defying the odds finally and, barring any further missteps, could offer future hefty payoffs for its shareholders, fund investors, and business partners. Some savvy investors are already pouring money into the company ahead of the planned spinoff of the handset division, which is likely next year.

Billionaire investor Carl Icahn, for instance, in August alone spent more than $100 million on Motorola’s shares. Research firm Barclays Capital has also jacked up its price target on Motorola stock to “$10 as the firm believes that Q3 Droid X units will surpass expectations.” These are votes of confidence suppliers need to watch closely.

It’s not too late to buy into Motorola’s coming upswing. As its businesses improve, and following the handset division spinoff, the company will move from cost-cutting mode to spending on growth-related activities. Suppliers will invariably benefit from this. Analysts estimate Motorola’s sales will improve slightly in 2010 to $22.4 billion from $22 billion in 2009 and then rise to $24 billion in 2011. If the company’s Droid smartphone series takes off sharply, the 2011 estimates could turn out to be too conservative.

Motorola indeed fell badly in the last years and is highly unlikely to match its record sales performance for many years. Sales at the company’s wireless handset division sagged starting four years ago, as rivals introduced more attractive multimedia devices or smartphones like Apple Inc.’s iPhone. Motorola’s annual sales have taken a beating since then, with revenue tumbling to $22 billion in 2009, down 49 percent, from $43 billion in 2006.

The sales decline hurt, not only Motorola, but also its component suppliers and contract manufacturers. As its cost of goods sold fell, Motorola’s bargaining power with suppliers similarly declined. COGS, the area of primary interest to suppliers jostling for business with Motorola, fell by half to $15 billion in 2009 from $30 billion in 2006. The implication was that Motorola had become a liability for many customers as they could not count on it for the huge volume of business they used to do with it.

Freescale Semiconductor Inc., for instance, exited the wireless IC component business because Motorola, its main customer, was performing so poorly in the segment. The investment required could not be justified, Freescale chairman and CEO Rich Beyer told me in an interview.

Motorola’s risk profile as a potential business partner has dramatically improved since then. While Freescale insists it will not jump back into the handset business, there are other areas where suppliers can benefit from the coming upswing in Motorola’s business.

11 comments on “Looking for OEM Business? Think Motorola

  1. bolaji ojo
    October 1, 2010

    There are people who still doubt whether or not Motorola now has its Mojo back. I can't blame them but the past is just exactly that “the past.” What do you think Motorola has been doing right and will these be enough to help the company regain market share? We want to hear from you.

  2. Barbara Jorgensen
    October 1, 2010

    Motorola has long been such an important customer in the electronics supply chain it's good to see they are expected to bounce back. There was a time when Motorola Inc. could drive such trends in the electronics industry as Six Sigma. Motorola decreed all its business partners must have Six Sigma quality and the industry jumped. Quality in the electronics supply chain would have improved anyway, but Motorola certainly spurred the effort throughout its supplier base.

  3. Anna Young
    October 1, 2010

    It is essential for the likes of  electronics manufacturer such as Motorola to find it's level again in the electronics industry. Afterall they have played a significant role in the past in setting the pace. I see Motorola rising to the occasion again.

  4. Violet
    October 3, 2010

    It is definitely a step in the right direction that Motorola continues to be conservative with spending and adding on when their sales are only 'slightly' increasing. definite emphasis on slightly! The Droid does appear to be popular, but it's hard, oh so hard, to compete with Apple. In comparison the iPhone simply operates faster than a Droid BUT the tiny keyboard that comes with the Droid is a good selling feature. I hate to see any company fail, especially a former leader like Motorola. I hope their MOJO is kicking in – if so, sign me up to buy some stock!

  5. Hawk
    October 3, 2010

    It's going to be a long slog for Motorola and they certainly are not out of the woods yet. It took a while for them to sink to the depths and crawling out of it is also going to take time. They are going against some tough competition now and rivals like Apple and Nokia are not going to easily yield any inch but it's a huge market and Motorola will find its niche. That's what they may be for some time, though; a niche player.

    Once Motorola spins off the wireless handset business, it's going to be gloves off because the new business will no longer be able to lean on or tap resources generated by the ex-sister divisions. Sanjay Jha, the CEO of the handset division, will have his hands full but a healthy and competitive market is good for customers, suppliers, contractors and even for Motorola itself. This way, it will never again just take anything for granted. That's the hope, anyway.

  6. FreakEngine
    October 5, 2010

    I think the unpopularity of Droid is the lack of interest of young programmers in Android. Android needs more visibility. How it's possible? Well, do like their competitors: bring new tech to young programmers to their high school or universities. BWT, if Android is introduced at schools for the next generation, the future of Droid will be prosperous future…

  7. bolaji ojo
    October 5, 2010

    For the first time in a long while, Motorola is changing its strategy in the wireless handset business. The company is no longer adopting a make-or-break strategy of relying on one popular product as it did with the StarTac and the Razr phones. This time, Motorola is rolling out new sets of phones with the hope of winning by giving customers a wider range to select from but still without spreading itself and the supply chain too thin.

    The Droid is attractive to certain market segments and I believe it may be a compelling buy for segments of the younger school-age crowd. I don't know which of Motorola's offerings will take off. Certainly, non has had the appeal or success of Apple's iPhones but it appears the company has staunched the bleeding in its wireless handset division and may even start seeing growth again. Perhaps it will eventually win over more of the young generation of developers and customers it needs to regain some market share.

  8. SP
    October 7, 2010

    Motorola is known for closing the entire facility down if something doesnt go as expected. I guess they have suggen and strong decisions. But some of their product lines are really profitable.

  9. papri1
    October 18, 2010

    Motorola has exited from the wireless market and hence investement to the above company is still quite risky to improve to it  in a better position. Phone buisness are gradually decreasing and hence it has to cope up with the new incorporations and technology to be competeting in the overall electronics market.

  10. itguyphil
    October 19, 2010

    Motorola have done mobile business for so long. I was not even aware of this development. What will they do now with the background and resources that they have?

  11. maou_villaflores
    October 31, 2010

    Motorola is the market leader during the early stage of the cellphone era (First and Second generation). They also into micro-controllers and its one of the most widely used micro-controllers in the automotive industry,

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