Ignore Cheaper Phones At Your Peril, Says Motorola

Thursday, February 15, 2007

Consumers in emerging markets may be buying cheap phones with low margins at the moment, but a Motorola executive said Tuesday that phone makers who ignored those markets would miss out on major global trends.

“Customers in emerging markets do a lot more with their phones than make calls,” Motorola’s Chief Technology Officer, Padmasree Warrior, told Reuters in an interview at 3GSM, the world’s biggest wireless trade show.

“They use text, they sell and buy goods, they make micropayments. If you don’t play in that market you miss out on all those innovations. It’s important to be a player,” she said.

Motorola is struggling with falling profit margins because demand for its more expensive phones disappointed in the fourth quarter and it earns less money on cheaper models.

The world’s No. 2 handset producer is leading the way in ultra low-cost handsets with market leader Nokia. But No. 3 Samsung Electronics said it is not interested in this low-margin segment of the market and instead focuses on more expensive handsets. No. 4 Sony Ericsson also supplies mainly the high end of the market.

“If it’s just a simple phone you’re supplying to the market, then I agree (the low end) is not a very attractive market segment,” Warrior said.

Still, Motorola aims to lift its profit margin even on lower cost models and one way it is doing that is by putting more pressure on its semiconductor suppliers.

The Schaumburg, Illinois-based company just announced it would start buying core semiconductors for its phones from Texas Instruments, making that company a third major supplier alongside Freescale and Qualcomm.

“What we want to do is optimize our platforms. Part of how we want to get to a better gross margin structure is by doing that,” Warrior said.

“It’s basically to diversify our dependence on a single supplier and make it more competitive from a price perspective and a technology perspective, so that we can use the best road map from a supplier,” Warrior said.

She said she expected consolidation among chip suppliers, mainly because chip makers need massive sales volumes to pay for research and competitive prices.

“We want to make sure we’re working with someone who has leadership in technology and leadership in price, and how do they get to price leadership? They have to have volume,” Warrior said.

Continue reading “Ignore Cheaper Phones At Your Peril, Says Motorola

Source: Reuters (link opens in a new window)