Motorola to sell chips to rivals
By Bruce Meyerson
Associated Press
NEW YORK — Motorola Corp. plans to sell its wireless chips and technology to rival cell phone makers for the first time, a key change of course in the battered company's bid to start making money again after cutting 30,000 jobs.
The company also plans to forge a new approach to the wireless chip business, selling pre-assembled circuit boards with all the various chips used in a cell phone, much like the computer industry uses pre-assembled ``motherboards'' to make desktop and laptop machines. Right now, most phone makers buy chips and other components to assemble their own handset motherboards.
The new initiative being announced Monday represents a significant departure from tradition for a pioneering wireless company that has always stressed its technological prowess as a distinguishing factor in its products.
The change in philosophy, Motorola executives told The Associated Press, is an admission that the innards of most cell phones are now largely uniform in terms of basic factors such as reception, sound quality and battery life.
"The underlying technology features of a cell phone have leveled out. You know a cell phone will work," said Ray Burgess, director of strategy and marketing for Motorola's semiconductor division, which last year accounted for about a fifth of Motorola's revenues. "There probably 300 to 400 components on a (wireless) motherboard. Why waste your time (buying and assembling them) when we can do that for you."
Instead, he said, the distinguishing factors for phones now revolve around creating new software applications and functions that take advantage of the advanced wireless technologies network operator are starting to use. Actually, Motorola only plans to sell motherboards for the production of next-generation wireless phones rather than the current breed of handsets and networks.
"Nokia and Ericsson don't compete on having better silicon that's 20 cents cheaper. They compete on style, on brand, on their relationship with wireless operators," Burgess said, predicting that the motherboard approach will become just as commonplace in the wireless industry as in the computer business. "When battery life was two hours going to three hours, that was the way handset vendors competed. It was our strategy to keep our technology within the company to differentiate ourselves."
In addition to producing customized motherboards for handset makers, Motorola said it will be offering a full range of expertise such as its software platforms for mobile devices and system tools for developing new applications.
"Only Motorola and Nokia have the full know-how to produce a complete phone," said Burgess.
As a shift in focus, the new plan contrasts sharply the frantic cost-cutting that has dominated Motorola's effort to survive the simultaneous blows of a sudden economic downturn and various missteps that allowed top rivals to steal away market share while the market for wireless equipment was still hot.
Two weeks ago, the company reported $232 million operating loss for the three-month period ended June 30, the second quarterly loss in a row after a 16-year run of profits, and warned that a third-straight losing quarter was on the way.
In reporting the latest numbers, Motorola hiked its job-cutting target by 4,000 to a total of 30,000 positions, of more than a third of the 147,000 employees the company had at the end of 2000.
The semiconductor division was one of the company's worst performers in the quarter, with sales plunging 38 percent from year-ago levels.
But even before the economy stumbled, Motorola's cell phone business was getting hammered by rising operating costs, flawed marketing strategies, and slowness in getting out new products. Once the world's leading supplier of mobile phones, Motorola held only a 13 percent share of the market at last count compared with a hefty 35 percent for Nokia.
Executives are hoping the new initiative will help lead the company's recovery by placing the semiconductor division in the sweet spot of a mobile device market that may be worth $35 billion by 2004, according to projections by Gartner Group.
