Motorola (NYSE:MOT) has selected Proview International Holdings Ltd., a Hong Kong listed company, to manufacture flat-screen TVs, computer displays, and DVD players carrying the Motorola name. Is this a good strategic move?
Motorola does have TV roots. Avid trivia buffs may remember commercials hawking Quasar television sets with their easy-to-fix "works in a drawer." Motorola exited the business in the mid-1970s, selling it to Matsushita (NYSE:MC).
Motorola, through Motorola Labs' carbon-nanotube research, is looking for a disruptive technology that will provide quality flat-panel displays for a significantly lower cost than current plasma and LCD offerings. The aim: to control the intellectual property and license the technology to manufacturers, bypassing extremely expensive capital expenditures for manufacturing facilities. However, this research is strategic; its ability to pay the bills is far from certain.
Motorola seems to be taking the same approach as PC companies Gateway (NYSE:GTW) and Dell (NASDAQ:DELL). Both outsource their display monitors to take advantage of Asian technology and pricing (Sampo, Taiwan's largest Taiwanese electronics company, manufactures an extremely successful plasma TV for Gateway). But while TV sales have been a growth business for Gateway, the wisdom of becoming a home-electronics company has not been tested over multiple product cycles and with a significant number of competitors.
And then there's this bit of market reality: Sharp, Matsushita (remember that Quasar?), and Samsung manufacture LCDs and sell TVs and monitors. Motorola must see Proview's Chinese roots as a way to lower costs -- especially for products such as DVDs. Proview's success against such giants is yet to be demonstrated.
No doubt, Motorola's brand name is a strategic advantage. Millions see it daily when they look at their cell phones. But besides Dell, Gateway, and Sharp, it will face such well-known names as Hewlett-Packard (NYSE:HPQ), Sony (NYSE:SNE), and Apple (NASDAQ:AAPL). Many others are at the gate, preparing to enter the gigantic home-electronics market. Having a familiar name could prove a small advantage.
Still, Motorola has made an excellent choice by partnering with a top-five display manufacturer that can also be a source of low-cost Chinese goods. But it faces high hurdles -- the expense of building an image, gaining market share, and proving the quality of its products.
W.D. Crotty can be reached at [email protected] .
