Arguably no company gained as much from Verizon’s lack of an iPhone than Motorola. Needing something to rival Apple’s phone, Verizon spent a fortune on its Droid brand and Motorola sold a lot of phones. But with a Verizon iPhone appearing imminent, it’s also true that it is one of the companies most at risk.
Speaking at an investor conference on Wednesday, Motorola CEO Sanjay Jha made his best case for the company and its opportunities in both smartphones and tablets. Motorola also plans to have 4G phones in the market early next year, Jha said, without giving specifics. But he also acknowledged the company is headed for some serious turbulence.
The first quarter is normally down from the prior quarter, but this year’s first quarter is shaping up to be a lot worse, with the cellphone unit expected to post a loss.
“We have an additional challenge potentially with Verizon,” Jha said, speaking in code so as not to use the iWord. “There is a competitive dynamic developing.”
Mobilized isn’t afraid to say the phone that must not be named. He’s talking about a Verizon iPhone.
Jha talked a lot about the company’s efforts to diversify–selling more phones to carriers other than Verizon, increasing sales in Latin America and China, and adding tablets. Jha said the company will sell both 7-inch and 10-inch tablets.
However, clearly not everyone was impressed. As noted by Barron’s, Nomura Securities launched coverage of Motorola stock on Thursday with a “reduce” rating, saying that a CDMA iPhone could ultimately push Motorola into the mid-tier of the smartphone battle, where it will face more competition from Asian makers, such as Samsung.
And the timing could hardly be worse for Motorola, which is spinning off the cellphone unit, a process that is slated to be completed on Jan. 4.
Longer-term, Motorola faces the challenge of using an operating system, Android, that is used widely in the industry, while spending more than rivals on research and other development costs.
One conference attendee suggested HTC’s research costs are a third of what Motorola spends. Jha said that there is a difference in the two companies’ cost structures, but rejected the idea that it was that pronounced.
“I think we are investing more in software differentiation,” he said. “I think we will make that investment matter.”
There’s also the fact that the phone businesss is so hit driven. That’s something the company learned on the positive side with the RAZR way back when, and on the negative side in the drought that followed the release of that slim flip phone.
Although the competition among Android devices is fierce, Jha said he doesn’t regret the company’s bet back in 2008 to focus so much of its resources on that operating system.
“There are obviously tradeoffs in every decision,” Jha said. “But on balance it’s been a very, very good decision for us.”
Jha said he knows that in order for Motorola to produce the kind of profit margins it wants long-term, it will have to be able to differentiate its software. Hardware differentiation, he said, gives only a six-month advantage versus doing something unique in software.
“I don’t think I can get to a gorilla position from where I am in one easy sweep, but I think it is possible to create differentiation in this business,” Jha said.
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