Almost exactly a year ago, Google shocked the industry by buying Motorola for $12.5 billion. Everyone agreed that Google coveted Motorola’s 17,000 patents. But there was a niggling question: What would happen to the rest of Motorola? We now have a pretty good idea.
In a filing with the Securities and Exchange Commission, Google announced that it will lay off about 4,000 of Motorola’s 20,000 employees. Google will also close or consolidate about one-third of Motorola’s 90 facilities. The shutdown will cost Google $275 million in the third quarter of 2012.
Motorola Mobility, which was split from Motorola Solutions prior to the Google acquisition, has lost money in 14 of the last 16 quarters, going back well before Google announced the acquisition Aug. 14, 2011.
In the SEC filing, Google said it will simplify Motorola’s mobile-product portfolio, “shifting the emphasis from feature phones to more innovative and profitable devices.”
A report from The New York Times says that in addition to the layoffs, Motorola will streamline its supply chain, cutting by 50% the different kinds of smartphone components — such as processors and sensors — that are used in its product lines. Google has also laid off 40% of Motorola’s vice presidents and replaced many of them with executives of Google’s choosing.
According to the report, the product team at Motorola will now be run more like a startup, leaner and more efficient, with an emphasis on innovation. The product team at Motorola is led by Regina Dugan, formerly of the Defense Advanced Research Projects Agency, better known as DARPA, the technology research wing of the Pentagon that birthed the Internet.
Motorola has been slow in the smartphone market despite the fact that, in 2009, it had some success with the original Droid, bringing the Android operating system to pop culture. The company’s other smartphone product lines have been commercial duds, from its Atrix and Razr to its Xoom and Xyboard tablets.
Motorola did achieve some critical success with several of its devices in recent years, such as its dual-core Atrix smartphone, which could be plugged into a laptop-like “dock,” that won Best of Show at the Consumer Electronics Show in 2011.
Motorola has fallen so far behind other manufacturers that it didn’t rank in the top five of smartphone shipments in the second quarter of 2012 according to research firm IDC. As recently as the middle of 2011, Motorola battled with Research In Motion (which has also fallen out of the top five) and HTC for fourth place behind Samsung and Apple and Nokia.
HTC, despite its own recent struggles competing at the top of the market, now ranks fourth behind Nokia with Chinese manufacturer ZTE ranking fifth (its first appearance in the top five). When feature phones are added to the equation, Motorola still does not rank among the top five cellphone makers. It is eclipsed by Samsung, Nokia, Apple, ZTE and LG.
Google appears to be remaking Motorola rather than burying it. It is getting Motorola out of the feature-phone market where margins are very low and it is already underperforming. Motorola likely will be tasked with creating a series of high-end smartphones to challenge the iPhone and Samsung Galaxy series.
“I don’t think this is the end of [Motorola]. But I do expect a scaled-back presence for Moto with fewer models, and a heavy concentration on the higher end of the market. Just like Nokia and RIM, Moto is being forced to concentrate on its core growth areas, and not try to compete for business at the low end where it can’t win,” said industry analyst Jack Gold with J. Gold Associates.
HTC has made a similar decision, cutting the variety of devices it builds, and focusing on its One series, with multiple screen sizes and price points.
Even Google’s financial and technological might not be enough to make Motorola a leader. Apple and Samsung take 90% of the profit in smartphones home with them. If that trend continues in the future, it may not matter what the likes of Motorola, HTC, Nokia or RIM do to their product lines. Both Nokia and RIM have announced heavy layoffs and restructuring this year to reposition themselves. It is now Motorola’s turn to reinvent its business.