Time to Shutter Mobile Devices, Motorola?

Motorola Co-chief Executive Sanjay Jha says the company is “completely committed to making [its] handset business work.” The question is CAN the handset business be made to work? Judging from the company’s latest earnings, the answer would appear to be a categorical “no.”

As the table above (click to enlarge) clearly shows, Motorola’s handset business is fast deteriorating, with fourth-quarter sales plummeting 51 percent.

And it’s only going to get worse. A weak product portfolio has already shorn Motorola’s share of the handset market to 6.5 percent–about half what it held a year ago. And with no strong product offerings until late 2009/early 2010 and consumer spending declining, Motorola’s prospects in the mobile handset sector look lousy. “They better hurry and fix mobile devices or it will become irrelevant,” said RBC Capital Markets analyst Mark Sue. Goldman analyst Simona Jankowski agreed: “I feel their position in handsets is awful and will get worse,” she told Reuters.

Indeed, as Global Crown Capital analyst Tero Kuittinen notes, Motorola’s entire handset portfolio is in disrepair. “Media keeps focusing on the high-end trouble–and Lord knows their luxury line-up is a hot mess,” said Kuittinen, who describes the company’s phone problems as “gruesome.” “But the real issue here is Motorola’s aging mid-range and low-end portfolios, particularly the senescent W-series, which is their big volume driver. Nokia executed an aggressive low-end revamp in the second half of 2008–bringing features like a megapixel camera and QVGA display to notably low price points. Motorola’s mass market models are looking heavy, boring and outdated in comparison. Redesigning the low-end portfolio is extremely expensive–particularly if you have to redesign the high end at the same time. I think it’s this issue that may become insurmountable for Motorola.”

So perhaps its time for Motorola (MOT) to do the inevitable: shutter its mobile devices division. After all, there’s no way it’s going to spin it off during this recession.

Said Kuittinen, “Shutting down the handset division would be incredibly painful and would happen only when every other option is ruled out. But the other two options are becoming increasingly unlikely. They really tried to sell or merge the handset unit a year ago–no takers in China or Japan while those economies were still doing OK. The other option would be to turn around the handset business. But they seem to be pulling back from the low-end market and withdrawing into mid-range and high-end. That’s a tough trick to pull off, because they have almost no high-end business left and running the mid-range portfolio alone is something no company has ever done successfully. Motorola’s volumes are getting too small to support a global business.”

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