The New York Times-20080124-Without a Hit Razr Sequel- Profit Drops for Motorola

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Without a Hit Razr Sequel, Profit Drops for Motorola

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In Hollywood, it does not take long for the pundits to start grumbling when a studio has a string of flops. Nowadays, things are no different for the cellphone business, which, like the film industry, is a hit-driven pursuit. Fail to follow up on a blockbuster product and the critics can be punishing.

That has been the fate of Motorola recently. The company acknowledged yesterday that it had yet to develop a worthy successor to its popular Razr. Executives said demand for Motorola's cellphones had slowed and the company was losing market share. In the fourth quarter, the company earned $100 million, or 4 cents a share, down from $623 million, or 25 cents a share, a year earlier.

Investors sent Motorola stock plummeting; shares fell $2.31, or 18.8 percent, to $10.01. That signals more trouble to come for the company, after Edward J. Zander stepped down from the chief executive position in December, under pressure from the investor Carl C. Icahn. Mr. Zander remains chairman.

Motorola is not the only struggling cellphone maker. Palm, which has not expanded on the success of its Treo line, is floundering too, with a stock price down 77 percent from its 52-week high. In September, the company canceled the Foleo, an ultralight laptop meant to be a smartphone companion, and it reported a quarterly loss last month, warning of continued weak sales and more product delays.

Like the movie studios, which are struggling with their own problems, analysts say cellphone makers not only need to be more savvy about what consumers want now, but also need to better anticipate consumers' future needs -- even before they know what they will want themselves.

Greg Brown, Motorola's new chief executive, acknowledged as much in a conference call with analysts. The competitive landscape has intensified, he said. Later in the call he added that creating interesting products was the most important thing we can do in improving the performance.

Meanwhile, newer entrants like Apple, which revolutionized the cellphone market with the iPhone, are making headway. Apple's stock was down Wednesday after a disappointing earnings forecast. But its projections for the iPhone are strong, with the company saying it is on track to sell 10 million iPhones in 2008.

Apple is really good at drawing attention by presenting things in new and different ways, said Avi Greengart, a research director for mobile devices at Current Analysis in Virginia. The iPhone generated hype, but deserved hype, because they could show people things they didn't know they could do with their phones. Now people are looking for new things, things they can't get yet even from Apple.

Motorola released the Razr in 2004 and it became a runaway hit. But the average life of a cellphone is now 12 to 18 months. And Motorola designers did not create a compelling new version fast enough to entice consumers to stay with the brand, analysts said.

It's like chewing a piece of gum until all the flavor has gone out of it, said Roger Entner, a senior vice president at IAG Research.

Mr. Entner added that as much as cellphone makers like Motorola need blockbusters, they also need the kinds of cheaper phones that are the core of any product lineup, particularly in international markets. Selling scores of cheap phones helps subsidize the cost of developing more expensive phones, and also acts as a cushion when fashion-hungry phone shoppers turn elsewhere.

It's the non-sexy workhorse that keeps things going, Mr. Entner said.

Mr. Greengart pointed to the N series of cellphones introduced by Nokia in 2005 (and with new releases each year), which are based on similar technology, then tailored and marketed to consumers' changing multimedia needs, including taking photographs, playing music and recording video. It's better to build a hit platform than just a hit device, he said.