So What Should Motorola Do Now?

When Google announced its Nexus One phone, it appeared that the new Android-driven connected device ecosystem would be a three-headed monster: Qualcomm as provider of the chips, Google as maker of the operating system and HTC as the preferred device manufacturer. (In the PC-centric WinTel world, the infamous troika consisted of Microsoft, Intel and Dell.) The Nexus One release essentially left Motorola and the guy who bet the company on Android, CEO Sanjay Jha, out in the cold.


At the device unveiling held at Googleplex, the search giant made a big effort to dispel the notion that it’s not doing an end run around its partners. Google even got Jha to show up, get on stage and mutter some polite nothings. It didn’t go unnoticed that he was late getting there — he cited traffic — and left as soon as it was over.

Well, paint me cynical, but guys who have corporate Gulfstreams at their disposal don’t get delayed in traffic unless they want to. More importantly, his onstage body language made clear that Motorola wasn’t too thrilled about the Nexus One, especially after publicly betting the farm on Android.

Indeed, I’ve since had two very senior sources in the mobile industry confirm as much.

If I was Jha, I’d sure feel snookered. And soon, the Verizon version of the Nexus One will be available, sales of which will undoubtedly come at the expense of the Droid, which is made by Motorola. The winner will once again will be HTC, the Taiwanese smartphone maker in which Qualcomm holds a minority interest.

“We had an investment in HTC very early on. And I knew Peter Chao (HTC’s chief executive),” Qualcomm CEO Paul Jacobs told Cnet’s Brooke Crothers some two years ago. When talking about Android, Qualcomm and HTC, Jacobs said, “It was kind of like a bunch of people who had known each other for a long time in the wireless industries coming together.” I wonder if HTC will build a Qualcomm-powered Chrome based device –- smartbook or tablet -– next. (That special Qualcomm-HTC relationship is perhaps the reason why HTC is porting its Sense technology to the increasingly irrelevant BREW platform.)

In a note to clients issued yesterday, RBC Capital Markets’ analyst Mark Sue estimated that Motorola sold 12.5 million mobile devices in the fourth quarter of 2009, down from his previous estimate of 13 million devices. He blamed slower-than-expected sales of the CLIQ, which are being handled by T-Mobile USA. At the same time, Motorola is banking on the U.S. and China for the near term before eventually going after the European market. While the Droid is said to have topped the million-device mark, the company is still skating on thin ice and any disruption — such as the Nexus One — could essentially send Motorola into bone-freezing waters. The Verizon edition of the Nexus One, for example, is going to challenge a new device Motorola wants to sell to Verizon customers. It is codenamed Calgary and has MotoBlur, according to Sue.

That is why the Nexus One feels like a knife in the back. So what should Motorola’s Jha do? Call Steve Ballmer, Microsoft’s CEO? Nah, that’s a terrible idea. Microsoft isn’t capable of stopping the Android train and even then Motorola is going to be betting on someone else’s OS. Maybe use LiMo or Symbian? Again, not so smart. What Motorola needs to do is take a page from the Apple/RIM playbook and get vertically integrated.

And in order to do that, the company should buy Palm. As I’ve already noted, Palm has a great OS. It actually has a couple of other things going for it as well, including Jon Rubenstein and the team he’s assembled, many of whom are former Apple folks. The Palm team should do the software and Motorola’s engineers, the hardware. And when it comes to the hardware, again, it should be adopting Apple’s design and development principles, which Rubenstein must know pretty well.

I argued back in March of 2007 that that Motorola should buy Palm. The tactical reasons I outlined then have since changed, but what hasn’t is the strategic imperative of the two companies teaming up. Palm needs scale, while Motorola needs software. It’s the only way the handset maker will be able to take full control of its own destiny, to not be beholden to Android or any other OS. In the past three years, both companies have become pale shadows of their former selves. They don’t have a minute to waste.

Maybe it’s time for Rubenstein and Jha to have that phone call!

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