Motorola has announced its first operating deficit in 15 years.
Motorola is only following the crowd. Over 80% of tech companies have now reported weaker first quarters. But Motorola’s operating loss of $206 million comes as a particular blow: in the same quarter last year the company made a profit of $481 million. Indeed, Motorola has recorded profits since 1985.
With such poor performance in the high-tech sector it doesn’t seem unreasonable to suggest a recession in the sector. It certainly looks like the gloom will continue for most of this year, not least because of the economic downturn in the US that looks likely to curb enterprise IT spending.
The mobile sector is particularly to blame for the drop in demand. The major markets for wireless products are becoming saturated and subscriber growth is slowing down. Unfortunately, companies have had to delay the roll out of next generation services as they overcome technical difficulties and try to fund the construction of the necessary infrastructure.
The effect of the maturing mobile sector and delayed 3G roll out is certainly evident at Motorola. Although order growth slowed in all divisions, its personal communications unit took a particular battering. Sales were down 29% and the section reported an operating loss of $402 million (compared to a profit of $53 million over the same period last year).
Motorola must not give way to the external influences that threaten its business. While it may have to accept that orders will be lower, it should concentrate on promoting its brand and start marketing its next wave technology. It has already launched GPRS handsets – six custom designs for target users – and should use its first-to-market advantage before Nokia and Ericsson enter the fray. GPRS, which offers higher bandwidth and ‘always on’ functionality, should offer considerable growth opportunities for mobile phones. Motorola should start pushing operators to launch these so-called 2.5G services as soon as possible and do all it can to take a significant market share. It may be the only way to ride the high-tech recession.
