With 1.3 billion units sold last year, the smart phone market is not only enormous, it’s also one of the most dynamic and competitive businesses on earth.
Few people know this better than Rick Osterloh, the president and chief operating officer of Motorola. When
“We had a fantastic quarter,” Osterloh said in an interview with Forbes. This week, the company reported that its fourth quarter revenue grew 118% from a year earlier, as it sold more than 10 million units. Among the major smart phone sellers, only Chinese sensation Xiaomi grew faster, with a 178% surge in shipments, according to IDC. (Motorola’s results, as well as strong sales of Lenovo-branded mobile devices and PCs, helped the Chinese electronics giant beat forecasts, sending its shares up more than 13% in two days.)
Now Osterloh is gearing up for battle with Xiaomi – not to mention
A measure of success in China may be the missing piece for Motorola to be able to claim that a turnaround that began under Google’s ownership is finally complete. But succeeding there won’t be easy. Apple has cornered the high end of the market as its Greater China sales, which include Hong Kong and Taiwan, surged 70% in the most recent quarter. Meanwhile, while Samsung appears to have lost some momentum, it remains a formidable player.
But it’s perhaps Xiaomi that will represent the biggest challenge for Motorola, as the two battle in the market for high-end devices at mid-range prices. The company is the hottest startup in China, with a market value of $46 billion. With savvy marketing and online sales through fan-clubs, Xiaomi rocketed to become the No. 1 seller of smart phones in China in just four years, before Apple edged it out of the top spot in the fourth quarter.
Osterloh is confident that that Motorola’s brand, which was first introduced in China in 1987 but exited the country several years ago, remains strong there. And he is counting on Lenovo’s massive distribution clout to give his company a leg up. (Lenovo dominates the low end of the smart phone market in China, and has long been the country’s largest seller of PCs. It has a massive network of retail stores and resellers throughout the country.)
“We get to take advantage of the vast scale of Lenovo in China,” Osterloh said. “It’s an amazing opportunity for us.”
Osterloh credits Google with giving Motorola the resources and time to restructure its business and begin its turnaround. The company exited dozens of markets to focus on just 10 countries in North America, Europe and Latin America. It streamlined its product line, narrowing it to a handful of innovative devices, like the well-reviewed Moto X. It removed superfluous software from its handsets, delivering a purer version of Google’s Android operating system while allowing consumers to customize them. Motorola also worked to remove costs out of its supply chain.
“Our phones were well received and we started to scale up,” Osterloh said. Over the past year, the company expanded its footprint again and is now in about 50 countries, with 10 or 15 more in its sights for this year.
“Google was great owner for us,” said Osterloh. “We needed time, substantial time, to restructure the business in a way that allowed us to become competitive. Google gave us that opportunity. Now that we are pointed it in the correct direction, Lenovo is the right platform to help us scale.”
This week Lenovo reaffirmed forecasts that Motorola, which had been a drag on Google’s financial results, would return to profitability in four to six quarters following the close of the acquisition.
Meanwhile, Osterloh believes the wrenching ups and downs of the mobile business present an opportunity for Motorola. “Every seven years, the person who’s been on top of the market has gone away,” he said.
“We are going through one of those fascinating shifts where people are starting to realize that you don’t need to pay $600 for a top-tier phone to get a top-tier experience,” he said. “We are an alternative to other premium brands at a much better value. We are very confident in our approach.”
