Is the iPhone killing Motorola?

Not exactly, but lack of the coolness factor may well do in Motorola's mobile business

With yesterday's news that Motorola Inc. might sell off its mobile device unit, it's fair to ask: Is the iPhone killing Motorola?

Well, not exactly, according to analysts, who note that Motorola's problems started years before Apple Inc.'s iPhone grabbed the stage in 2007.

The iPhone still makes headlines, and Apple has sold 4 million units since last June. But the iPhone has certainly not been around long enough to be the main cause of problems for Motorola's device business.

But the iPhone does have the kind of coolness factor that Motorola's phones, lately, seem to lack, analysts said.

"The single biggest problem Motorola faces is building phones that people want to buy," said Jack Gold, an analyst at J. Gold Associates. "Since the first Razr, their phones just are not very cool, and they have to figure out how to get that coolness factor back.

"The iPhone is definitely cool, and if Motorola had the iPhone, they'd be kicking butt now," Gold added.

So how does a manufacturer with $36.6 billion in revenue in 2007, of which more than half was in mobile device sales, suddenly get to the point of making hip phones? How would Motorola reverse a 33% decline in device sales seen last year?

Would it help to send its developers to some kind of a how-to-be-cool camp? Or bring in a Coco Chanel consultant?

"Actually, bringing in fashion designers makes sense," Gold said. "Apple does that."

Nokia Corp. also has used outside design teams to its benefit, said Phillip Redman, an analyst at Gartner Inc. Nokia sells the most cell phones globally, although it is trying to gain greater market share in the U.S.

In addition to Nokia, device makers LG Electronics, Samsung Electronics Co. and even BlackBerry maker Research in Motion Ltd. have gained market share at the expense of Motorola, Gold noted.

Motorola's problem is not simply finding a sexy new skin color for a phone, but also developing software and related technologies to build a better user interface, analysts said. Motorola designers apparently believe they have an answer to that need for a better user interface with the Rokr E8. The E8 is expected to ship in March worldwide and features the company's novel ModeShift technology, which switches the device into a phone, music player or camera with the touch of a button.

Besides the need to find the best user interface, Motorola also has a problem with too much complexity, analysts said. The company, which shipped 41 million phones in the fourth quarter alone, is relying on "way too many" operating systems for its various devices, Gold said.

The list of operating systems from Motorola includes Windows Mobile, a Motorola proprietary operating system, Symbian and Linux. On top of that, Motorola has become a partner in the group headed by Google Inc. that is planning to build phones atop the new Android platform.

With so many platforms, "no wonder they have so much trouble building a decent UI," Gold said. "Users could care less what the OS is. They want functionality and ease of use."

Jeffrey Kagan, an independent analyst in Atlanta, said Motorola "needs a comeback product" to rival the first Razr and even the StarTac phone from the 1990s.

So while Motorola's problems are "not directly related to the iPhone ... the cell phone business rewards companies who think ahead of the customer, and that is something Motorola just has not been able to do," Kagan added.

Analysts agreed it would be hard to find any easy fix for Motorola's mobile device unit, which brings them back to the possibility that the business could be spun off.

It's hard to image a cell phone market without Motorola, Kagan mused. "Now that would be a sad day," he said.

Copyright © 2008 IDG Communications, Inc.

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