Motorola's Mobile Phone Business Is Back In The RedMotorola's Mobile Phone Business Is Back In The Red

Motorola this week said that its mobile phone business is not doing well and that it will likely continue to post losses for much of 2007. Just a couple of years ago Motorola was the darling of the mobile market. The Razr was the hottest cell phone on the block and CEO Ed Zander could do wrong. What happened?Motorola's return to the red was caused by two things. First, the company never really followed up the Razr with a new hit. That's not to say that Motorola didn't take chances. It took a lot of chances. The big problem, though, was that the chances didn't pay off.

Motorola tried to partner with Apple for an iTunes phone, but that didn't work. The company played with the basic design and formula of the Razr, hoping to copy Nokia's success with it's chic candybar layout in the late 1990s, but that didn't work either. Motorola launched the Q in a bid to take on the BlackBerry. While the Q was not a flop, it failed to unseat the BlackBerry or Palm's Treo.

This isn't the first time Motorola was burned by a hot device that went stone cold. In the 1990s Motorola rode the success of its StarTAC phone, only to be upstaged by the popularity of the aforementioned Nokia candybar juggernaut just a few years later.

The second reason Motorola dipped back into the red was that Nokia, the world's global mobile phone market leader, drug the Razr out on its playing field. While the Razr was trendy Motorola could sell the device at a premium. Even with carrier subsidies, Motorola was able to easily bankroll the phone.

But as the Razr cooled and went from hot to has-been, price pressure mounted and Motorola was forced to sell the Razr for cheap. There is only one company built to sell cheap mobile phones on a massive scale. That's right, you guessed it, Nokia.

When rival cell phone makers like Motorola or Samsung get pulled on to that playing field, they always lose to Nokia. But when mobile phone makers can keep producing successful devices that they can sell at higher prices, they often make ground against Nokia.

Sony Ericsson seems to have learned this lesson well. The company has a wide porfolio of mid-tier to upper-tier devices and it has avoided being pulled out to the cheap phone Nokia sausage factory. As a result, its numbers remain solid.

Motorola needs to take a few pages out of the Sony Ericsson play book. They need to develop a tight portfolio of mid-tier and upper-tier handsets and leave the cheap phones to Nokia. Maybe this means they'll actually kick down for Palm this week.