HALF MOON BAY, Calif.--Motorola Mobility has been through several near-death experiences in the past few years, but its impending acquisition by Lenovo will allow it to double the number of markets it competes in and ride the trend toward lost-cost smartphones, according to Motorola President and COO Rick Osterloh.
Motorola is still technically a Google (NASDAQ: GOOG) unit, though Lenovo is expected to close its $2.91 billion deal for the company by the end of this year. Osterloh, speaking here at Re/code's Code/Mobile conference, said Motorola "went through a near-death experience, probably several times," in the past few years. But he said the company is now primed to regain market share.
Before Google bought Motorola in 2011 the company was losing market share and had bad products, Osterloh said. Motorola significantly trimmed its operations under Google, cutting 17,500 jobs and reducing the number of countries it operated in from 70 to 10.
Now, Osterloh said, "things are totally different." Motorola is not yet profitable but is growing sales 100 percent per year. The Moto G, the company's entry-level smartphone that sells for around $180 on an unsubsidized basis, is the "benchmark in value smartphones" and the company's best-selling phone of all time, he said.
Motorola is stronger in some markets than others. For instance, the company has around 20 percent market share in Brazil, Osterloh said, but only 5 to 6 percent in the U.S., though he said that should grow with the introduction of the new Moto X, the Nexus 6 and Droid Turbo, which Verizon Wireless (NYSE: VZ) just introduced. In India, Motorola is now No. 4 thanks to aggressive online sales, Osterloh said.
When Lenovo acquires Motorola, the firm will be No. 3 by volume in the smartphone market behind Samsung Electronics and Apple (NASDAQ: AAPL), Osterloh said. Motorola will keep using its brand and the two firms will benefit from having complementary footprints. Whereas Motorola is in the Americas, Western Europe and India, Lenovo has a strong presence in China, Asia-Pacific and Eastern Europe. "We will be able to scale much faster than we would be able to on our own," Osterloh.
"Lenovo is a very, very successful company," he said. "They really understand the hardware business."
Being part of Lenovo could make it possible for Motorola to capitalize on growth in low-cost smartphones in emerging markets. Research firms think that is where the majority of the growth in the smartphone market will come from in the next few years. Osterloh said Motorola will return to the Chinese market with its branded smartphones; Motorola's position in China has declined during the past several years. That occurred in tandem with Google's decision in 2010 to move its servers out of China because of censorship concerns, and as the Chinese government moved to block Google search and services from Android phones.
Osterloh said Motorola's goal is not necessarily to become a "dominant" player though. "What we want to do is be the user's choice," he said. "The way we think about our business is, give end-users the power to choose." He said Motorola has gained share because it won users back through a few different options in its portfolio, especially the Moto G at the lower end of the market. The company can use that strategy to scale and get back to profitability, he said.
Osterloh acknowledged that Samsung and Apple are the global smartphone market leaders, and said that is not a good thing. "I don't think it's a healthy situation, and it's probably not good for consumers to have runaway leaders in any industry," he said. Osterloh said although Apple and Samsung dominate the U.S., "a lot of interesting stuff happening in the industry if you look outside the U.S."
Osterloh said that wearables, and watches in particular, have great potential. Motorola's first smart watch, the Moto 360, is now available for $250. He called the Moto 360 the "first wearable you actually want to wear." However, he noted that while Motorola is "happy" with initial sales, it's "very early so our expectations have been pretty modest." The value from smart watches comes from health tracking and the ability to subtly check notifications, he said.
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