The Rise and Fall of Motorola

YouTube/Startup Sapience

Here is a video from this transcript: Motorola

It is not a single event that brought about the demise of Motorola but a collection of unfortunate ones. Motorola was once the largest mobile phone manufacturer before Nokia dethroned it in 1998. But at that time, Motorola was working on an interesting project through its spin-off, Iridium SSC.

Iridium’s goal was to launch space satellites to connect the world with its wireless phone service. Sounds a lot like Elon Musk’s SpaceX Starlink right? However, after having spent 5 billion dollars, Iridium filed for bankruptcy in 1999. At the time, the company was struggling to get customers on board because its handset and talk time would end up costing way more than available products. Motorola ended up writing off 2.5 billion dollars on that investment. Since the bankruptcy, creditors from Iridium were seeking 4 billion dollars in damages against Motorola, alleging breach of contract. Although Iridium creditors won 300 million dollars from Motorola in 2002, the later trials were settled at no cost to Motorola in 2008.

At its peak, Motorola had 150,000 employees. After Iridium’s bankruptcy, Motorola started a string of worldwide layoffs. By the end of 2004, Motorola cut down its workforce to around 68,000 employees.

Motorola Employees

After failing to deliver on its side project, the company wanted to focus on its core operations and launched Motorola Razr series. The Razr v3, launched in 2004, sold around 120 million units worldwide, becoming the best-selling clamshell phone.

Shortly after, in 2005, Motorola partnered with Apple to launch the Rokr E1, which connected with Apple’s music store. However, when Apple launched its iPhone in 2007, Apple discontinued the partnership. Apple’s first iPhone in 2007 changed the whole industry dynamics. It was a do or die moment for incumbents and Motorola suffered the most. Its market share dropped from 21% in 2006 to 2% in 2011. And from 2007 to 2009, it was reported that Motorola lost 4.3 billion dollars.

Motorola Market Share (Data from Statista)

In hindsight, we can observe one key learning outcome. Apple spent all of its resources in perfecting one phone whereas Motorola was working on dozens of phone models at once. Apple also quickly caught on the shift from hardware to software driving the mobile phone industry. It thus poured a lot of its energy into design, while Motorola failed to do so.

In October 2009, Motorola introduced Droid, a smartphone designed to compete with iPhone. Although the Droid was selling well at first, it simply was not enough to compete with the new wave of smartphones. Competitors such as Samsung and LG were getting a better handle on what customers wanted.

In 2011, Motorola was split in two, Motorola Mobility and Motorola Solutions, with the former being focused on consumer devices. Google bought Motorola Mobility for 12.5 billion dollars in May 2012, which represented a 63 percent premium over the stock’s market price. Google’s aim was to get a hand on Motorola’s 17,000 patents. The rationale behind it was that owning these patents would help Google protect its Android operating system from infringements. There was also the potential for licensing revenues by pooling patents and leasing them to competitors.

Google thought it could build on Motorola’s core like it did with YouTube and Android. However, in 2014, Google sold Motorola Mobility to Lenovo for 3 billion dollars. And one might ask, why would Google sell a company for 25% of its original acquisition price.

At acquisition, Google inherited Motorola’s 3.2 billion dollars in cash and 2.4 billion in deferred tax assets. In April 2013, Google sold Motorola’s home set top box division to Arris Group for 2.35 billion dollars. In the sale to Lenovo, Google kept Motorola’s patents that it valued at 5.5 billion dollars. Even if we account for Motorola’s 2 billion dollars in operating losses during that time, Google certainly did not lose 75% of its investment on that acquisition. It is to note that we did not consider any impairment of Goodwill in this analysis.

Sale to Lenovo Analysis

Lenovo did a good job of using Motorola’s infrastructure. Its Moto G series have sold over 70 million units in the last five years. And recently, it launched its revamped Motorola Razr smartphone. However, the public had greater expectations for the device given its hefty 1,500-dollar price tag. The camera, battery life and junkware greatly hindered consumer experience.

There were also complaints about the product’s durability. The flip phone would last only 27,000 folds on the FoldBot folding machine versus Samsung’s 120,000 folds.

Motorola definitely went into a roller coaster ride the past two decades but it has a lot to offer under Lenovo. This pivoting acquisition is definitely driving Motorola in the right direction and the company might still have a few more surprises up its sleeves.

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Startup Sapience is a documentary web series that explores the business models of promising startups and industry trends.

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Startup Sapience

Startup Sapience

Startup Sapience is a documentary web series that explores the business models of promising startups and industry trends.

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