A wake-up call for the cell-phone industry

Jeff Tyler Jan 5, 2007

KAI RYSSDAL: There was a warning from the world’s second largest maker of cell phones today. Motorola cut its projections for fourth-quarter growth. And on a day already troubled by the prospect of higher interest rates, investors didn’t take the news well. Motorola shares took a nosedive —down almost 8 percent today. And some on Wall Street worry the news might mean trouble for the whole mobile-phone industry. Marketplace’s Jeff Tyler has more.

JEFF TYLER: Even though high-tech analyst Gary Arlen says . . .

GARY ARLEN: I’m afraid when there’s news like this, there’s never a good time.

The timing is nonetheless awkward. Motorola’s CEO is giving the keynote address on Monday at the influential Consumer Electronics Show in Las Vegas.

ARLEN: On the heels of this financial news, there will certainly be a lot of questions about where Motorola is heading in 2007.

Looking back a couple years, Motorola’s sleek Razr was the cell phone to have. But Arlen says the Razr can no longer fetch top-dollar.

ARLEN: Motorola and all the others have had to cut phone prices because there’s so much competition.

The world’s largest cell phone company, Nokia, has also been forced to make discounts. Industry analyst Rob Enderle says the market for new customers is especially tight.

ROB ENDERLE: Now it’s looking like it’s kind of saturated. People are happy with what they’ve got and aren’t feeling particularly motivated to get something else.

Motivated or not, consumers have a bunch of new options. Enderle says a new phone by Samsung is a contender. Also coming up next week — MacWorld. Gadget-heads expect Apple to unveil its brand of cell phone with a built-in iPod.

ENDERLE: The good news is, for the consumer, you get a choice of a lot of great phones. The bad news for a company that is as large as either Motorola or Nokia is that it’s very hard for you to differentiate out of that group. The Razr was a stand-out phone. It’s going to be really difficult to stand out in this crowd.

How Motorola plans to stand out from the competition will presumably be revealed in a couple weeks. That’s when Motorola releases the official fourth-quarter results, and management shares its plan for boosting profits.

I’m Jeff Tyler for Marketplace.

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