BEIJING - For years, Motorola has proudly displayed
its corporate logo atop its China headquarters in Beijing. But Motorola
rival Samsung Electronics was an official sponsor of the Olympics, and
Chinese officials decreed that no other company could advertise cell
phones during the Games. So, while Samsung plastered its ads all over
town, Motorola couldn't even keep its sign on the building.
The advertising blackout was just the latest setback for Motorola in
what has been a bruising two years in China, which was long a
successful market for the company. For years, Motorola was No. 1 or No.
2 in the China mobile-phone market. But its share has plummeted from
more than 21% in 2006 to an estimated 7.9% this year, according to
market researcher Gartner (IT). In contrast, Nokia's (NOK) share has topped 38% of the market, while Samsung is likely to grab 8.3% this year to move up to No. 2.
Motorola can't afford to continue its nosedive. With 583 million
cell-phone users, China is the world's largest mobile market. Chinese
bought 176 million handsets last year and are likely to purchase 192
million in 2008, Gartner says. That compares with sales of 186 million
phones this year in the U.S. and Canada. The drop in China is
particularly painful for Motorola, because before the slide the
fast-growing market had helped it narrow the gap overall with archrival
Nokia. Motorola's "position in China was stronger than what it [was]
globally," says Aloysius Choong, research manager in Singapore for
market research firm IDC. "It was making a lot of the right moves."
Motorola's sales in China totaled $2.6 billion in 2007, or 7% of its
global revenues. That was down from $4.7 billion, or nearly 11%, in
2006.
What went wrong? To some extent, Motorola in China faces the same
problem that plagues the company elsewhere: It failed to produce an
encore to the popular Razr phone, launched in 2004. In China, coming
out with new models is important because big-city consumers replace
their phones frequently and put a priority on models that are
cool-looking but reasonably priced. "They haven't come up with the
next-generation product that replaces [the Razr]," says Mark McKechnie,
telecom equipment analyst with American Technology Research. "The guys
that replaced it were Nokia, Samsung, and even LG." Indeed, when rivals
came out with similar models, Motorola's new entries were pricey
multimedia phones that didn't connect with consumers. While the U.S.
company developed a smartphone for China, the Ming, the touchscreen
device did little to boost Motorola's overall market position.
The result: Chinese consumers have soured on the Motorola brand.
Chen Xin, a 37-year-old Beijing resident who works for a local
info-tech company, once bought five Motorola phones over a four-year
span. But now he prefers Nokia and Sony Ericsson models, calling
Motorola phones "ugly and not very easy to operate."
It hasn't helped that Motorola's competitors have been so good at
tackling the China market. As an Olympics sponsor, Samsung associated
itself with the feel-good experience that millions of Chinese enjoyed
from the Games. The Korean company sells inexpensive models such as the
Anycall CC03, a hit with first-time mobile users, as well as premium
models. "We try to make sure Chinese early adopters are among the first
to have our top-of-the-line phones," says Roh Ki Hak, senior
vice-president.
For its part, Nokia remains comfortably ahead of the pack, thanks to
its wide range of models. "Nokia has really covered every segment,"
says Dave Carini, an analyst in Beijing with Maverick China Research.
Nokia also has been a leader in streamlining its Chinese distribution
system, cutting out middlemen and working directly with retailers. The
Finnish company's efficiency is one reason its handset operating
margins run about 20%, while Motorola barely breaks even, says American
Technology's McKechnie.
The news from China isn't all bleak for Motorola, however. The
Schaumburg (Ill.) company has won important infrastructure contracts
with Chinese carriers recently. In early August, Motorola announced it
had landed $431 million in contracts to provide China Mobile (CHL),
the market leader, with second-generation GSM equipment. That's up from
$394 million for the same period in 2007. Motorola is also working with
the other two cellular operators, China Unicom (CHU)
and China Telecom, says Simon Leung, president of Motorola
Asia-Pacific. "We are the only ones with the technology to address the
needs of all three of them," he says. As for its handset problems, "we
took our eyes off the ball a little bit," Leung admits. But Motorola is
launching new phones, including an updated and expanded line of Ming
smartphones, according to Bruce Brda, senior vice-president for mobile
devices.
Will that be enough to turn around Motorola's fortunes in China? "I
would not write them off," says Sandy Shen, research director for
mobile devices with Gartner in Shanghai. But given the depth of the
problems, she adds, "I wouldn't hold my breath."
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