Motorola's uphill fight for survival

American technology company Motorola is facing a struggle to survive. But can a last ditch effort by a new top executive help the company pull one of the biggest comebacks in American business history?

That's the question being asked after Motorola broke the news on its quarterly conference call on Thursday that the handset business, which has been in serious trouble for more than two years, is unlikely to make a turn around until early 2010. The problems are so grave at the company, which reported huge losses for the third quarter, that Motorola is delaying its planned spin-off of the handset division and restructuring the entire business in the hope that it can finally create products that will excite consumers.

As the world economy tumbles toward recession and competitors such as Apple and Research In Motion continue to pump out popular new products, Motorola's fight will be an uphill battle. But recoveries do happen. Other companies have risen from their deathbeds. And now with the help of its new star co-chief executive, Sanjay Jha, Motorola hopes it can add its name to the list of companies that have risen from the ashes.

"We're either witnessing a slow death here, or the darkest night before the dawn," said Sam Wilson, senior analyst at JMP Securities. "But one thing is clear: this is a company royally screwed up in a brutally competitive market. And it won't be easy to turn things around."

Motorola invented the mobile-phone market some 35 years ago, when its engineers demonstrated the very first mobile phone call using a device developed by Motorola. A decade later, after services were built, it was the first manufacturer to commercially sell its mobile phone, nicknamed the 'Brick'. And while the Motorola mobile phone is what helped the company make its brand a recognisable name throughout the world, it's also what could eventually destroy it.

Motorola's fundamental problem today is that the company has not had a hit phone since it introduced the ultra-thin Razr in 2004. But even worse than not having a hit phone, the company seems to have entirely missed a significant paradigm shift in the handset market. Consumers are moving away from traditional feature-based mobile phones, such as the Razr, and are moving toward more sophisticated smartphones, such as the iPhone.

Motorola hasn't ignored the smartphone market entirely. It has introduced a handful of Windows Mobile phones including the Motorola Q. But new competitors, such as Apple with the iPhone and Research in Motion with the BlackBerry, have clearly stolen the show and garnered much of the attention in the smartphone category.

"The market essentially moved without them," Wilson said. "There is very little growth left in the standard feature-phone market. And when you think of a smartphone, you think iPhone or BlackBerry. You don't think Motorola Q."

Meanwhile, Motorola's traditional competitors have grown stronger. Nokia has widened its worldwide market-share lead. And Samsung has replaced Motorola as the number-two handset maker in the world. Now LG is snapping at Motorola's heels and could bump the company to fourth place.

In an effort to breathe new life into its handset line up, Motorola is betting the farm on two mobile operating systems: Windows Mobile and Google's Android.

Co-chief executive Jha, who was hired in August to take over the handset business and help spin it into its own company, said on the company's earnings call that Motorola will dump at least four operating systems, including Symbian, to focus on developing products using Android and Windows Mobile. Mid-tier phones will run Android, while the company will use Windows Mobile for its high-end smartphones.

The problem for Motorola is that it will take time to make this transition. Jha said he doesn't expect an Android phone on the market until the 2009 Christmas season.

By that time, Apple and RIM are likely to have introduced their own new products to the market. But more importantly, Motorola will have to ensure...