Just when you thought the smartphone market couldn’t get any more crowded, Google Inc (NASDAQ:GOOG) recently teased that its Motorola Moto X Android smartphone might be arriving ahead of schedule. Although Motorola Mobility Holdings Inc (NYSE:MMI) CEO Dennis Woodside previously stated that the Moto X would be available from several carriers by October, recent reports claim that it could launch as early as August. Google Inc (NASDAQ:GOOG)’s full-page advertisements in U.S. newspapers teasing the handset’s release certainly indicate that the phone could arrive ahead of schedule.
But do we really need another Android handset, this time manufactured by Google Inc (NASDAQ:GOOG), rather than by a partner like Laclede Group Inc (NYSE:LG), which created its flagship Google Nexus 4 phone? In addition, won’t the Moto X, if successful, antagonize Google Inc (NASDAQ:GOOG)’s Android allies, who have done all the heavy lifting on the hardware end?
Justifying Motorola
I believe that the Moto X is Google Inc (NASDAQ:GOOG)’s attempt to justify its $12.5 billion acquisition of Motorola Mobility Holdings Inc (NYSE:MMI) last year. At the time, I thought that Google had simply acquired Motorola Mobility Holdings Inc (NYSE:MMI) for its patent portfolio to strengthen its moat against Apple Inc. (NASDAQ:AAPL) and Nokia Corporation (ADR) (NYSE:NOK). However, Google sold Motorola Mobility Holdings Inc (NYSE:MMI)’s home unit to Arris Group Inc for $2.35 billion, which reduced Motorola’s revenue by 29% and got rid of 1,000 patents. Many of those patents were related to TV set-top boxes, which could arguably have given Google an edge in the living room, which Microsoft Corporation (NASDAQ:MSFT) is attempting to dominate with the Xbox One. In addition, Apple Inc. (NASDAQ:AAPL)’s long-rumored iTV could finally arrive later this year.
Google Inc (NASDAQ:GOOG) also sold two of Motorola Mobility Holdings Inc (NYSE:MMI)’s manufacturing plants to Singaporean manufacturer Flextronics International Ltd. (NASDAQ:FLEX), which has been shifting some of its facilities from Asia to the United States. The Moto X will be produced by Flextronics International Ltd. (NASDAQ:FLEX) in the United States, which gives it the distinction of being the first handset “designed, engineered and assembled in the USA”, as Google’s full-page ad boasts. Although Apple can’t make that claim with its iPhone, it has moved its Mac production to Flextronics International Ltd. (NASDAQ:FLEX) in the U.S., as the start of an effort to bring more hardware production stateside. Apple Inc. (NASDAQ:AAPL) has also been running ads that emphasize that its products are designed in California, although they are still assembled in China.
Even with Google’s help, the Moto X will be a tough sell to a market divided between Apple and Samsung. Motorola only has a global handset market share of 3%, and the division hasn’t been profitable ever since Google acquired it. In the most recent quarter, Motorola Mobility Holdings Inc (NYSE:MMI) reported a loss of $271 million, down from $86 million in the prior year quarter.
Hello Moto X
A lot of hype surrounded Google’s claim that the Moto X could be “fully customized” for individual users. Although some people believed that this meant that its hardware components could be customized like a car’s options, it turned out that Google was simply stating that there would be a “palette of different colors” for the case and the trim, an option for engraving the back, and the use of an uploaded photo for its wallpaper.
Those are hardly the revolutionary customization options that some users were expecting, but these features can all be selected when the phone is ordered online. The Moto X is then customized to the user’s specifications at Google’s 500,000 square foot factory in Fort Worth, Texas, which is operated by Flextronics. However, the idea has potential, since customers generally get very few customization choices in their handsets besides the color.
Under the hood, however, Moto X isn’t all that different from its peers. Let’s see how it’s rumored specifications measure up to Laclede Group Inc (NYSE:LG)’s Nexus 4, Apple’s iPhone 5, and Samsung’s Galaxy S4.
CPU | Display | Camera | OS | |
Moto X | 1.7 GHz dual-core Snapdragon Pro | 4.7 inch, 720p | 10-megapixel | Android 4.2.2 Jelly Bean |
Google Nexus 4 (LG) | 1.5 GHz quad-core Krait | 4.7 inch, 1080p | 8-megapixel | Android 4.2.2 Jelly Bean |
iPhone 5 | 1.3 GHz dual-core A6 | 4.0 inch, 1080p | 8-megapixel | iOS 6.1.4 |
Galaxy S4 | 1.2 (A15), 1.6 (A7), or 1.9 GHz (Krait) (all quad-core) | 5.0 inch, 1080p | 13-megapixel | Android 4.2.2 Jelly Bean |
There are plenty of unknown hardware specifications at the moment, and even these could change in the future. However, based on these specifications, the Moto X doesn’t really bring anything new to the table. More than anything, the Moto X poses more of a threat to Laclede Group Inc (NYSE:LG) and Samsung, two of its Android allies, than to Apple. It also feels redundant, considering that most people consider the Nexus to be Google’s flagship brand. Why didn’t Google simply brand the Moto X as the next Nexus instead?
Therefore, if successful, Google would cannibalize its own market, and if unsuccessful, it would have wasted a lot of time and development costs. In addition, Motorola will still look like a $12.5 billion bridge to nowhere.
Does “Made in the USA” matter?
Google’s “Designed by you, assembled in the USA” ads which ran right before Independence Day were clearly taking a jab at Apple. As patriotic as that idea might seem, however, it rings as hollow as Google’s “Don’t be evil” mantra.
The truth is that Google’s partner Flextronics is based in Singapore, and has manufacturing plants all over the world. Google and Flextronics’ decision to move several plants back to the United States from China and Indonesia wasn’t made for patriotic reasons. It was due to the rising manufacturing costs across emerging markets, exacerbated by rampant inflation and a weak dollar.
Flextronics CEO Mike McNamara stated that costs in China have risen 20% annually, and that he expects this trend to continue over the next five years. He also noted that costs have risen 30% and 40% in Malaysia and Indonesia, respectively. Therefore, manufacturing the U.S. suddenly appears to be an attractive option, considering the lack of language barriers, the weak dollar, and proximity to the designing companies.
However, that’s not to say that margins will be better if Google’s Moto X and Apple’s Mac Pros are manufactured in domestic plants. They should still come in lower than their outsourced peers, but both companies are betting that the positive PR spin will help generate enough sales volume to make up for that slack.
The Foolish Bottom Line
Despite all of Google’s hype, I believe that the Moto X is destined to be another Android smartphone in a severely saturated market. Although it might get some exclusive Google features based on motion sensor and voice technology, it won’t have enough clout to shake the stigma of the Motorola brand, which is considered a faded icon of the past.
Steve Jobs once advised Google CEO Larry Page to focus on the things that the company did best and trim off all the extra businesses. Unfortunately, Google is still all over the map these days, and this latest venture into smartphones to justify its Motorola acquisition might be a pointless distraction from its core businesses of search and advertising.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Will the Moto X Finally Justify Google’s Acquisition of Motorola? originally appeared on Fool.com is written by Leo Sun.
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