Betting on Motorola's Droid Is Premature
It's an excellent smartphone -- but it faces serious competition.
The upcoming Droid smartphone, based upon Google's (GOOG) new Android 2.0 operating system, has Motorola (MOT) on a little bit of a roll. The beleaguered mobile-phone maker delivered a pretty decent third-quarter earnings report this morning, but surprised Wall Street with an upbeat fourth-quarter outlook, powered by high expectations for the Droid.
Motorola does have one very good thing going for it: The post-RAZR hangover is nearing its end, and the company is cycling through very easy year-over-year comps in its mobile-device unit. With a small unit sales base, there's a good chance that one hot phone could really goose the numbers. And it has a hot phone in the Droid, which has serious marketing support from both Verizon (VZ) and Google.
The Droid could have easily been just another smartphone, but it boasts Google's free turn-by-turn navigation system, a killer app. In fact, I'll probably be picking up one myself next week. I've had Apple (AAPL) iPhone envy for quite a while, but I favor Verizon's network. And the Droid's screen, camera, and GPS system won me over.
However, betting on a big turnaround for Motorola looks premature.
Just look at the industry landscape: Between the Apple iPhone, Palm (PALM) Pre, and the hordes of Blackberries from Research In Motion (RIMM), there are almost too many quality smartphones out there, and competition in the Android 2.0 subset is only going to increase. The Droid is looking very good now based on positive reviews and industry buzz, but other Android 2.0 phones are coming -- maybe even one from Google itself.
Motorola will in all likelihood report a strong fourth-quarter, but there is a lot of uncertainty heading into next year, especially on the pricing side. How much can you charge for an Android-powered phone if there are a dozen of them on the shelf?
Plus, it's rumored that AT&T's (T) deal for iPhone exclusivity will end in 2010. The iPhone could end up at Verizon as serious competition for Motorola's upcoming suite of Android-powered phones. The Droid may outperform the iPhone from a pure features point of view, but the majority of phone buyers don't care all that much about features -- they just want ease of use and a snazzy-looking package.
One company, however, that looks like an Android victim is Nokia (NOK). Analysts expect Nokia to post a 2% revenue gain next year, but I just don't see how that's possible given Nokia's weak position in the smartphone market. With Android 2.0 generating serious buzz, there just might not be all that much room in the market for phones based on the Maemo operating system, which Nokia is favoring.
And who the heck knows what the likes of Apple and Research in Motion have up their sleeves for next year. Nokia has literally too much market share, and too many competitors chomping at the bit to take some of it.
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