Analysis: Apple must heed the Motorola lesson

TechOnline India - July 14, 2009

Apple Corp. is winning rave reviews for its iPhone wireless handset device but in order to maintain that momentum, the company must keep its innovative engine humming otherwise it could fall victim to the same problems that hurt Motorola Inc. in the mobile communications equipment market.

Apple Corp.'s strong growth and torrid market share gains with the iPhone in the mobile handset market is justifiably celebrated by industry executives but there is a cautionary tale somewhere in Motorola Inc.'s experience for the personal computer and consumer electronic equipment company.

The danger Apple faces is that consumers who have so excitedly welcomed the iPhone could just as quickly turn on the product and abandon it for often whimsical reasons especially if the company fails to maintain the innovative process that has helped it capture a huge chunk of the smartphone and digital music player markets.

Just ask Motorola, whose Startac and Razor phones blew away the competition and helped it come ever so close to displacing Nokia as the world's largest supplier of mobile handsets.

Today, Motorola is a shadow of its once glowing self, its sinking market share and pallid market capitalization—$13.9 billion vs. Apple's $127 billion—mirroring the image of a company many investors now view as a relic of the past.

By contrast, Apple's hefty market value is reflective of the market's view of the company—an innovative enterprise considered far ahead of even sector leader Nokia Corp. in designing and introducing products that easily capture consumer attention.

Although it is still the world's biggest vendor of wireless handsets, Nokia seems to be drifting off investors' radars as shown in its market value of $54 billion, less than half of Apple's market capitalization.

Unlike Motorola, the ex-arch rival it pounded painfully into near oblivion, Nokia continues to maintain its strategy of rolling out good, solid and dependable products that help maintain its market share but lack the "wow" appeal of the Razor and the iPhone.

Even now, few mobile handset customers anywhere in the world can mention a single current or historical Nokia product that upon introduction oozed the compelling "must-have" appeal of the iPhone and the Razor.

{pagebreak}The two strategies—old, dependable and stodgy from Nokia vs. young, daring and flashy from Apple—are set to collide again, just as they did when it was Motorola versus Nokia. While it is yet to be seen which strategy will prevail, what's obvious right now is that market perception is tipping the scale heavily towards Apple.

Apple is currently a favorite of many consumers and investors. That's why its market value is bigger than the combined valuation of Nokia, Research in Motion (maker of the Blackberry) and Motorola.

That valuation is not built on empty air. Apple's revenue growth over the last years has been stunning. Annual sales climbed to $32.5 billion in fiscal 2008 from $13.9 billion four years earlier, up 134 percent; Nokia's sales grew 48 percent over a comparable period.

Even in the thick of a worldwide economic downturn, Analysts forecast Apple's revenue will increase to $35 billion—Nokia's revenue is estimated to decline 25 percent—at a time double-digit sales decreases are on tap for most companies in the high-tech world.

Maintaining that super-charged growth rate will not be easy and Apple will have to steadily pump out even more exciting upgrades and replacements for its current and hottest products. Even this may not be enough to satisfy now raging consumer and investor expectations for something new and different each year from Apple.

The company may have to dive deeper into the consumer electronics market and pull off more stunning upsets with even more visually appealing and functionally pleasing products in other areas, including video gaming, for example.

If Apple fails to meet such stratospherically high expectations, the company will disappoint not only investors and customers but also many of its supply chain partners, including semiconductor component vendors and outsourced manufacturers.

Nokia won't shed a tear for Apple, though. Unlike Motorola's Startac and Razor offensives, the iPhone attack on Nokia's market share poses real danger to the world's biggest handset vendor and so even the slightest hitch in Apple's famed innovative engine would be cause for celebration in Espoo, Finland.

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