Motorola to Sell Wireless Chips to Rival Firms

Motorola Corp. plans to sell its wireless chips and technology to rival cell phone makers for the first time, a key change of course in the battered company’s bid to make money again after cutting 30,000 jobs.

The company also plans to forge a new approach to the wireless chip business, selling pre-assembled circuit boards with all the various chips used in a cell phone, in much the same way as the computer industry uses pre-assembled motherboards to make desktop and laptop machines. Right now most phone makers buy chips and other components to assemble their own handset motherboards.

The initiative, which is expected to be announced today, represents a significant departure from tradition for a pioneering wireless company that has always stressed its technological prowess as a distinguishing factor in its products.

The change in philosophy, Motorola executives told the Associated Press, is an admission that the innards of most cell phones are now largely uniform in terms of basic factors such as reception, sound quality and battery life.

“The underlying technology features of a cell phone have leveled out. You know a cell phone will work,” said Ray Burgess, director of strategy and marketing for Motorola’s semiconductor division, which last year accounted for about a fifth of Motorola’s revenue. “There probably are 300 to 400 components on a [wireless] motherboard. Why waste your time [buying and assembling them] when we can do that for you?”

Instead, he said, the distinguishing factors for phones now revolve around creating software applications and functions that take advantage of the advanced wireless technologies network operators are starting to use. Actually, Motorola

plans to sell motherboards for the production of next-generation wireless phones, not for the current breed of handsets and networks.

“Nokia and Ericsson don’t compete on having better silicon that’s 20 cents cheaper. They compete on style, on brand, on their relationship with wireless operators,” Burgess said, predicting that the motherboard approach will become as commonplace in the wireless industry as in the computer business. “When battery life was two hours going to three hours, that was the way handset vendors competed. It was our strategy to keep our technology within the company to differentiate ourselves.”

In addition to producing customized motherboards for handset makers, Motorola said it will be offering a full range of expertise such as its software platforms for mobile devices and system tools for developing applications.

“Only Motorola and Nokia have the full know-how to produce a complete phone,” Burgess said.

Motorola stock has lost about half its value in the last year, though the stock has started to rise in recent weeks. Friday, shares fell 64 cents to close at $18.50 on the New York Stock Exchange, down 8% so far this year.

As a shift in focus, the new plan contrasts sharply with the frantic cost-cutting that has dominated Motorola’s effort to survive the simultaneous blows of a sudden economic downturn and various missteps that allowed top rivals to steal market share while the market for wireless equipment was still hot.

Two weeks ago, the company reported a $232-million operating loss for the three-month period ended June 30, the second quarterly loss in a row after a 16-year run of profit, and warned that a third straight losing quarter was on the way.

In reporting the latest numbers, Motorola hiked its job-cutting target by 4,000 to a total of 30,000 positions. The company had 147,000 employees at the end of 2000.

The semiconductor division was one of the company’s worst performers in the quarter, with sales plunging 38% from year-ago levels.

But even before the economy stumbled, Motorola’s cell phone business was hammered by rising operating costs, flawed marketing strategies and slowness in getting out new products. Once the world’s leading supplier of mobile phones, Motorola held only a 13% share of the market at last count compared with a hefty 35% for Nokia.

Executives are hoping the new initiative will help lead the company’s recovery by placing the semiconductor division in the sweet spot of a mobile device market that may be worth $35 billion by 2004, according to projections by Gartner Group Inc.