Is This Why Moto Wants Its Own Operating System?

Most of us scratched our heads when rumors surfaced that Motorola Mobility (NYSE: MMI  ) would create its own mobile operating system. Why, we wondered? Foolish colleague Rich Smith suspected management delirium.

Now it appears that desperation may have been the bigger factor. Having early access to Google's (Nasdaq: GOOG  ) most advanced version of the Android operating system hasn't helped sales.

Two separate reports from analysts at Pacific Crest Securities and Deutsche Bank say sales of the heavily advertised Xoom tablet and Atrix smartphone have been underwhelming. The Xoom, in particular, has sold just 100,000 units, according to Deutsche Bank estimates quoted by trade magazine InformationWeek.

By contrast, Samsung sold 600,000 of its well-received Galaxy Tabs in the first month of availability. Apple (Nasdaq: AAPL  ) sold roughly 1 million iPad 2 tablets during its first weekend of availability.

How much do you think Steve Jobs is loving this? For all my hand-wringing over the Mac maker's newest iMockery, consumers are acting as if the iPhone and iPad really are a cut above their peers -- the Atrix and Xoom included.

Knowing this, I'm a bit more forgiving of Moto's management than my friend Rich. They have to do something. Creating a new OS is probably the least attractive of their options. But without a change -- and I mean, soon -- losses could return.

Do you agree? Disagree? Let us know what you think about Moto's strategy and competitive positioning, and whether you favor the Atrix or Xoom over its iOS alternatives using the comments box below.

The Motley Fool recently introduced a free My Watchlist feature that allows users to stay ahead of the curve and receive up to date news on companies like Motorola Mobility, or any of its competitors. To get up-to-date Moto news and analysis, add the company to your watchlist today:

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Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He owned shares of Apple and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Apple and Google and has written Apple puts. The Fool is also on Twitter as @TheMotleyFool. Its disclosure policy operates just fine without a system.


Read/Post Comments (8) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 07, 2011, at 2:08 PM, Tim1T wrote:

    The tech press is starting to notice the fact that while Android is "open" at least by Google's definition, the operating system isn't a level playing field.

    Google has a few partners that get the new version of the OS months before other customers. And that can be a huge competitive advantage for OEMs that want to add value to their offerings.

    The deeper issue of course is that if Moto is relying on another company to provide the basic interface, they are giving up the very advantage that makes Apple so effective.

    What if Google starts focusing on a new business direction farther down the road? What if Google decides to favor Samsung or another OEM? There are countless ways that Motorola could lose out if they don't control their own OS and any good company has to think of these potential roadblocks before they get ambushed.

  • Report this Comment On April 07, 2011, at 2:27 PM, marv08 wrote:

    The problem here is that Google is creating a huge dilemma as a result from solving another huge dilemma...

    The dilemma they try to solve is fragmentation. They do this by only giving candies (early access to unfinished software) to those OEMs who do not tinker too much with the OS. So, these will be first, but they have little or no chance to differentiate their products (1. due to timely constraints and 2. because they are not allowed to).

    Now, as a result, all these OEMs will have almost identical products, which creates a lot of competition and pricing pressure. To make it worse, they have to compete with the market leader Apple, who has the economies of scale on his side. And if this wasn't enough, they have largely unhappy developers, because Android customers do not spend as much money as the other guys.

    IF (big "if" intended) Motorola with whatever, or Samsung with Bada, manage to create viable alternatives, while the Android mess is getting bigger and bigger and the margins are getting lower and lower, then it could make good sense. Actually, they do not need to start from scratch either. They could just fork Android :)

  • Report this Comment On April 07, 2011, at 2:45 PM, arnhol2 wrote:

    Fool should review a little more deeply these articles.

    I've been bashing SA , Minyan, and a few of the other sources who ,all have passed the same ol' portions of the same article along.

    This is the fifth time threw the press in several versions.

    Moto's numbers wer for 50k units Q1 and 150k in Q2.

    Seems you just forgot that portion of the original article.

    I've been seeing a trend with SA and Minyan.

    Did you know DEER is suing SA for big bucks for this same type of amateur journalism by bloggers?

    Most of which trash a company in order to gain by shorting the stock.

    I feel all bloggers articles should be only for Registered Fools.

    Same wit SA/Minyan and any other.

    With strict enforcement of reproductions of the articles to any other place, such as Yahoo.

    Just thought Fools would be more responsible.

    I am long MMI.

    at the moment more of my portfolio than preferred.I've averaged down in this big scam 5 times.

    Cover those shorts, we made numbers with XOOM.

    still a lofty $32.77 average by all analysts.

  • Report this Comment On April 07, 2011, at 2:53 PM, artlaz wrote:

    There also may be some concern of the future of Android, what with the numerous lawsuits from Microsoft, Oracle and Apple. There may come a time when royalties have to be paid or Google will just decide it isn't worth it to keep developing Android - after all, they are giving it away.

  • Report this Comment On April 07, 2011, at 3:27 PM, arnhol2 wrote:

    Does Google really think that way.

    Google could snap MMI up and go head to head with Aapl.

    So long HTC and all other Android devices after contracts are up.

    Motorola has been around in the communication industry for many years and is a definate takeover target at these prices.There are very many smart people that could meld easily with Google over at Motorola Mobility.

    10 Billion would be a fair price for all their expertise.Only about a 30% premium to MMI's 7.2 market cap.

    JMHLO!

  • Report this Comment On April 07, 2011, at 3:44 PM, marv08 wrote:

    @arnhol2: This makes little sense. Google's only motivations in all this are mobile ads, and making sure people search on Google, so they see ads, sponsored results, etc. So, they need Android (unaltered) to be on as many devices as possible and Google Search to be the default on as many mobiles as possible.

    What have they achieved in this regard? While Google is the default search engine on all Apple devices, and there are Google Maps including ads / sponsored entries on all iOS devices... there are now millions of Android devices not featuring either (two Chinese Android forks not working in Google's favor and a few Verizon Android devices defaulting to Bing)... Ironic, isn't it? On the other side Apple, a complete newbie in advertising, captured a respectable slice of the premium ad market with iAds in almost no time...

    So far, Android has really no business model. An "open" platform without any community development, sources withheld because software is not ready but shipping, and an app infrastructure that does not pay the developer's bills. High market share can be a pretty efficient smokescreen it seems. But a lot is really quite rotten underneath.

  • Report this Comment On April 07, 2011, at 4:47 PM, TMFMileHigh wrote:

    @curlyhead46,

    >>On the other hand Amazon has been reporting the Xoom to be there #1 best seller for weeks.

    We should be clear that this refers only to the Wi-Fi edition. The 3G Xoom is #33:

    http://www.amazon.com/Motorola-Android-Tablet-Verizon-Wirele...

    Importantly, this list includes used tablet sales, which is why the original iPad is the #2 seller.

    I think it's also worth remembering that Pacific Crest and Deutsche Bank aren't the only ones reporting weakness in their channel checks. comScore reported subscriber share losses for MMI in its latest mobile research report:

    http://comscore.com/Press_Events/Press_Releases/2011/4/comSc...

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On April 08, 2011, at 12:16 PM, Tim1T wrote:

    The respected tech site Ars Technica has a related post about Android:

    "The problem here is that Google can and will use its unilateral control over the code base to manipulate Android adopters. The company can limit early access for any given release as a strategic instrument to hinder hardware vendors that don't do what it wants."

    The full article is here and well worth reading:

    http://arstechnica.com/gadgets/news/2011/04/android-chief-ru...

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