Motorola (US)

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A one-time leader in mobile communications with over 50% global share, Motorola lost its way during the 1990s, and could soon face extinction in the consumer sector after a series of attempts to rebuild the brand have ended in failure. The company was one of the original pioneers in radio communications and a leading light in the development of cellular phone systems in the 1980s. During the following decade, however, Motorola saw its command of this high-profile sector whittled away as it failed to make a smooth upgrade from analogue to digital technology. A move into satellite communications turned out to be an expensive distraction as well as an embarrassing flop. A change of direction (and management) began to deliver results from 2004 following the introduction of the stylish Razr handset. But in 2007 the company suffered a new and even more prolonged slump. The group split into two entirely separate companies at the beginning of 2011. Handset business Motorola Mobility was acquired by Google in 2012; less than two years later, it was sold on to Lenovo of China for $2.9bn, but by 2016 the brand had lost most of its remaining value, and will now be phased out. The remaining network systems business continues to trade separately as Motorola Solutions.

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 19th May 2016: There was another shakeup at the shrinking Motorola mobile business now owned by Lenovo. Divisional president Rick Osterloh and CMO Adrienne Hayes have both left the company. Osterloh has returned to his previous employer Google, and was replaced by former North America head Aymar de Lencquesaing. Hayes was replaced as marketing chief by Jan Huckfeldt, based in Paris. At the same time, Motorola's advertising outside the US was consolidated with Ogilvy & Mather, following the resignation of Droga5, which had held the business for the past couple of years. Separately, Lenovo shifted another chunk of its own brand advertising business over to Ogilvy. It's not clear who is the main loser here out of the brand's other main agencies, Saatchi & Saatchi and MullenLowe.

Adbrands Weekly Update 14th Jan 2016: Chinese technology giant Lenovo has announced plans to begin phasing out the once-mighty Motorola mobile brand later this year. Instead, those devices will adopt the name Moto by Lenovo, alongside the existing family of Lenovo Vibe devices.

Adbrands Weekly Update 3rd Feb 2014: In a surprise turnaround, Google took the opportunity to cut its losses on the Motorola handset business it acquired less than two years ago. It has agreed to sell the company to China's Lenovo for just $2.9bn, considerably below the $12.4bn it paid for the company. However the search giant has already recouped some of that cost by selling off Motorola's set-top box business for more than $2bn and it will keep hold of most of Motorola's 20,000 valuable mobile patents. The announcement followed a disappointing final quarter for Google in which poor performance at the Motorola division caused combined results to fall below expectations. For the year, Google reported total revenues of $59.8bn, up 19%, with net income rising 20% to $12.9bn. Motorola contributed revenues of $4.3bn, only marginally higher than the year before, and increased operating losses. The fast exit from handset manufacturing marks a comparatively rare misstep for Google, but a major gain for Lenovo, which already leads the handset market in China but has virtually no presence in Western mobile markets. If the deal is approved by US regulators - no certainty - Lenovo would become only the second major company after Apple to hold a leading global position in PCs (it became the worldwide #1 during 2013), smartphones and tablets. 

Adbrands Weekly Update 21st Nov 2013: Google's Motorola division launched a direct assault on Apple and Samsung's high-end smartphones by introducing a new handset, the Moto G, that offers most of the same features but at a considerably lower price, around $179 in the US without a contract, compared to $500 to $600 for Galaxy or iPhone. It makes its debut in Latin America, a traditionally strong region for Motorola, as well as the US, UK and selected other markets.

Adbrands Weekly Update 12th Sep 2013: Ads of the Week: "Lazy Phone". The new campaign from Droga5 NY for Motorola is endearingly silly, with this hairy drop-out standing in for your current phone and all its annoying faults. None of which you'd find on the new Motorola Moto X of course. 


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Background

Free for all users | see full profile for current activities: Motorola has a long history in mobile communications. In 1928, Paul Galvin and his brother Joseph bought a small business in Chicago which made devices to allow battery-powered radios to run on standard household electric current. Renamed The Galvin Manufacturing Company, it did well, but the brothers discovered an even bigger new market two years later with the invention of the first practical and affordable car radio. Paul Galvin coined the term Motorola for their invention. This was the beginning of a golden age of radio in the US. Consumers were queuing up to buy home radios, while the concept of affordable wireless communication was revolutionizing many businesses. In 1936 the company launched its Police Cruiser mobile radio, the first radio set pre-tuned to a single frequency so it would pick up only police broadcasts. A year later the company introduced a range of simple home radios, and added push-button tuning, fine-tuning and tone control to its automobile range. By 1940 Galvin was generating sales of almost $10m.

World War II presented Galvin with a new set of commercial opportunities. In 1940 the company developed the first handheld two-way radio for the US Army Signal Corps, followed by a more efficient FM version in 1943, widely known as the "Walkie-Talkie". Despite the adverse economic effects of the war, the company successfully floated part of its stock the same year. However Joseph Galvin died unexpectedly in 1944, aged 45. Post-war, the company moved into other areas. A petrol-powered car heater was tested in 1946, but was withdrawn after numerous problems. As a result the company vowed to stick to electronics. It launched its first television set a year later, the Golden View VT71. Priced at just $179, the company sold 100,000 units in its first year. With its radio brand now a household name in the US, the company formally changed its name from Galvin Manufacturing to Motorola.

In 1949, the company became one of the first US businesses to begin research into solid-state technology. As a result its three-amp power transistor, finally launched in 1955, was the world's first high-power transistor in commercial production. It allowed the company not only to reduce the size of its radios, but also introduce the first personal pocket pager, the Handie-Talkie, which quickly gained wide usage in US hospitals. As semi-conductors revolutionized electronic technology during that decade, Motorola became one of the world's biggest manufacturers of silicon chips. In 1959, the X11 Portable was Motorola's first pocket-sized all-transistor radio. The same year, founder and driving force of the business Paul Galvin died, and was replaced as president by his son Robert.

In the early 1960s, the company moved into automotive electronics, manufacturing alternators and other power-related products. Its radio transponder accompanied the Mariner 2 spacecraft to Venus, and it developed the first rectangular colour television tube. Later its Quasar set was America's first all-transistor colour television. In 1965 it teamed up with Ford Motors and RCA to develop the ill-fated 8-track tape system. Motorola also spread its wings, establishing manufacturing facilities all over the world. At the end of the decade, communications with the first manned mission to the Moon were conducted entirely through Motorola equipment.

In the 1970s, the company withdrew from the television market, selling its operations to Matsushita Electric. Instead the group concentrated on its micro-processor business, now in huge demand as a stream of "intelligent" consumer appliances began to flood the market. In 1977 the group began work on an experimental cellular two-way radio network This was eventually launched in 1983 as the DynaTAC cellular system, and the company was besieged with orders. The company began setting up its own cellular networks later that decade, especially in the fast-developing Latin American market.

During the 1990s, the company continued to revolutionize the functionality and practicality of its range of analogue pagers and mobile phones. But it increasingly concentrated its efforts on the development of a satellite communications system, named Iridium, believing that this would replace cellular technology as the standard in mobile wireless communications. Unveiled in 1990, the system finally went live in 1998. However by then, rapid advances in digital cellular technology by other manufacturers had pushed the Iridium System onto the fringes of the market, while the ticket price of $1,500 for a satellite phone was ludicrously impractical. Having dominated early developments in the analogue cellular market, Motorola now found itself overtaken by faster-moving foreign companies such as Nokia and Ericsson. Another 1990s initiative, the PowerPC alliance between Apple, IBM and Motorola, also gradually fell apart. Formed in 1991, it was finally dissolved in 1998. Christopher Galvin, grandson of the company's founder, took over as chairman in 1997, but he failed to revitalise the company when it came to making swift strategic decisions. Gradually Motorola saw its lead in the global mobile handset market whittled down from around 50% in 1990 to under 13% while in the market for PC and wireless processors it struggled to break out of the shadow of Intel and Texas Instruments. 

Iridium finally collapsed in 2000, and Motorola was forced to write off costs of $2bn. (The project was eventually bought by a private consortium for a fraction of the $5bn Motorola spent constructing it). The same year the group acquired rival electronics engineering firm General Instrument, which specialised in cable and satellite broadcast set-top boxes, and agreed to outsource part of its general manufacturing to Flextronics in a massive $30bn deal. At the same time it sold off its various interests in local mobile communications networks in Latin America and elsewhere to Telefonica and France Telecom. But despite these financial benefits, Motorola found itself increasingly squeezed as the downturn in the global mobile phone and semiconductor industries began to bite during 2001. The group announced a series of cost-cutting programs to dispose of more than 40,000 jobs, or a quarter of workforce. Operating losses and the cost of restructuring forced net earnings to plunge from $1.3bn in 2000 to a loss of $3.9bn. Without the benefit of a substantial tax repayment, the loss would have been even higher.

A further 7,000 jobs were cut in 2002, when the company also announced it would be making a $3.5bn exceptional charge in its accounts. Despite signs that the group was beginning to turn the corner by mid 2003, the turnaround was too slow for Motorola's long-suffering shareholders. Towards the end of the year, chairman & CEO Christopher Galvin handed in his resignation. Soon after, the group announced plans to spin off semiconductors into a separate company. New chairman-CEO Ed Zander was almost immediately able to report a sharp upturn in financial performance in early 2004, although he also predicted further cost-cutting. The introduction of a new range of handsets led to a dramatic upturn in Motorola's fortunes between 2004 and 2006. 

A key development was the introduction in 2005 of a series of stylish (and expensive) handsets which successfully grabbed headlines around the world. Specifically the group set out to "reinvent" the six main handset formats: described as the clamshell, candy bar, PDA, QWERTY, slider and rotator. The first of these was the ultra-thin Razr, a high-end clamshell camera phone only half an inch thick, followed by the Pebl clamshell phone, the ultra-slim Slvr candy bar, and Krzr and Rizr sliders. The Razr was especially successful, selling around 100m units in its first few years. The company also forged an alliance with Apple to allow owners of Motorola's mass-market music phones to play music downloaded from the computer manufacturer's iTunes website. The first such device, the Motorola Rokr, launched in late 2005 in a partnership with Cingular Wireless. Other products include the Moto Q smartphone, which launched in 2006, a competitor to the Blackberry handheld device, with a Windows operating system. A more recent addition to the Q series was the Karma, launched in 2009, and designed specifically as a social networking device, with easy one-click access to Facebook and MySpace.

In a further departure from its more conservative past, the group unveiled a line of snowsports apparel, including O Rokr sunglasses, produced in partnership with eyewear specialist Oakley, which featured a built-in Bluetooth hands-free headset and MP3 music storage drive, and a winter-sports jacket with integrated music storage and phone system, in partnership with Burton Snowboards. There was also a partnership with the Product Red organisation to produce limited edition versions of the Razr and Slvr in aid of charity. These top-end devices are accompanied by a wide range of less stylish, lower-cost handsets, under the MotoFone and W-series sub-brands. 

The result of this reinvention of Motorola's handset business was a dramatic improvement in performance. The company shipped 217m handsets in 2006, and this created a strong upturn in market share, which rose by around 4 percentage points to an estimated 21.1% share of the worldwide market, well behind Nokia, but also comfortably ahead of #3 Samsung. The company claimed to be the #1 mobile manufacturer in North and South America, and #2 in Europe and North Asia. That strength should have laid the foundation for further growth during 2007, but instead the company experienced a sudden and even more dramatic collapse in performance, especially in the second quarter, in which handset shipments fell by more than a third compared to the same quarter a year earlier, and revenues from handsets plunged by 40%. The group was obliged to issue no less than three profit warnings over the course of the first half of the year, and said that it did not expect its handsets division to show a profit for the year as a whole. A corresponding surge by Samsung allowed the Korean company to overtake Motorola to become the global #2, although Motorola managed to remain #1 in the US.

So what went wrong? Simply put, Motorola was far too slow to to develop beyond the Razr and Slivr concept. Much of the impetus for that overhaul of the company's handset business came from chief marketing officer Geoffrey Frost. However, tragically, Frost died suddenly from a heart attack in November 2005. In the fast-moving and fashion-led handset market, handsets become old news in a matter of months, and Motorola had no strong contender with which to follow, just more of the same design. Nor did it have a ready supply of new 3G devices to take advantage of surging bandwidth increases. Adding to the company's woes, the top end of the US handset market went into a slow-down pending the launch of Apple's iPhone. Motorola unveiled its next generation of products in May 2007, including 3G phones and its own multimedia competitor, the Moto Z8, but these were not strong enough or different enough to deliver another much-needed turnaround. 

Another problem was the elimination of Motorola's once commanding lead in the fast-expanding Chinese market. In the 1990s and early 2000s, Motorola enjoyed a virtual monopoly of the Chinese handset market, and was the main supplier to China Mobile. However share came under intense pressure from rivals from 2005 onwards. Too busy fixing problems in its domestic market, Motorola was slow to react to the influx of local competitors as well as aggressive push by Nokia and the Korean manufacturers. As a result, most of the growth in the Chinese market went to Nokia, whose share soared to 30%, three times that of Motorola. 

Market researcher IDC estimated that Motorola's global volumes fell by almost 27% in 2007, from more than 217m units in 2006 to 159m, making it the only major handset manufacturer to report a decline. Market share plunged from over 21% in 2006 to under 14%. Ed Zander stepped down as CEO of Motorola in December 2007, and surrendered the role of chairman as well a few months later. Yet there was still no improvement during 2008. That year, unit sales plunged to just over 100m handsets, less than half the number sold two years earlier. Revenues from the mobile phone division fell by more than third for the second consecutive year to $12.1bn, while operating losses almost doubled to $2.2bn. By the end of the year, the group's share of the global handset market had fallen to a lowly 6.5%. 

Partly in response to pressure from activist investor Carl Icahn, Motorola confirmed in March 2008 that it would spin off its handset division to shareholders as a separate company, and focus instead on radio networks. That separation was originally expected to take place in early 2009, but the economic turmoil of 2008 caused the group to push back its schedule. Towards the end of 2009, however, it announced a change of strategy, encouraged by the early response to a new line of Droid smartphone handsets. Instead, the set-top box business was the one put up for sale. By early 2010, however, that process was also postponed when initial offers for the unit were lower than anticipated. As a result, the original group was simply split into two companies, both bearing the Motorola name.  See full profile for current activities


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