Last Updated: March 10, 2008: 3:31 PM EDT
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Motorola continues to lose signal

Unless market trends shift dramatically, Motorola may end 2008 as the world's fourth-largest mobile phone maker.

By Scott Moritz, writer

Motorola's woes are partly due to its failure to introduce compelling wireless models in recent years.

(Fortune) -- Motorola is on track to end the year as the world's No. 4 mobile phone maker.

As that humbling number indicates, these aren't fun times for the stumbling Schaumburg, Ill. wireless titan. Nokia (NOK) continues to dominate the market with about 40% of the business, and that stake is growing. Rival Samsung surpassed Motorola last summer as the No. 2 phone maker. And now, if Motorola's 27% annual decline in phone sales continues, the foundering phone shop could easily end up at the bottom of the big five phone makers' list.

This emerging scenario comes as Stu Reed, the former handset chief and operations streamlining specialist bolted Friday a month after CEO Greg Brown took over his duties. Brown is under pressure from shareholders - including Carl Icahn - to break up the company, presumably to unlock whatever hidden value is contained in Motorola's other businesses like cable set-top boxes, wireless infrastructure, communications security services. Motorola (MOT, Fortune 500) stock is now regularly trading below $10 a share for the first time in years.

In January, Brown and the board put the money-losing mobile phone business on the shopping block, though Brown contends that the unit is fixable and that he's looking for a new handset chief to turn things around.

It's hard not to appear desperate when you are in a fast-sell situation. Brown clearly wants to keep the appearances up even as the firm's mobile phone business continues to swoon. "It appears cheap," says one money manager who doesn't own the stock. "But who wants an R&D shop that is losing money, U.S.-centric, and has no competitive advantage on cost and distribution?"

The answer to that not-so-flattering question could have been Dell (DELL, Fortune 500). The PC maker had been considered a top contender for Motorola as speculation swirled around a possible entry into the mobile phone business. Last year, Dell hired former Motorola handset chief Ron Garriques in what appeared to be an interest in pushing a mobile device effort.

But at the moment, Dell isn't in a good position to be gambling on a hot new market. The Round Rock, Texas computer maker is currently on the attack trying to unseat rival Hewlett Packard (HPQ, Fortune 500) in the retail market. Dell's most recent disappointing earnings report, however, suggests that it may have to work on fundamentals first.

Without a compelling lineup of new phones, Motorola's troubles will continue. While a few years ago Motorola's Razr was a consumer favorite, that was before Apple's (AAPL, Fortune 500) iPhone hit the scene. The company failed to present any new designs at two recent industry showcase events. Meanwhile, Sony Ericsson - currently the no. 4 phone maker - has unveiled a handful of new models including a touchscreen phone with a slide-out keyboard that appears to be aimed at Apple's iPhone. By contrast, Motorola has offered no hint that it's caught on to the touchscreen trend.

How close are the numbers between competitors? Motorola sold 159 million phones last year, well below the 217 million mark the company hit in 2006. The dull roster of phones helped speed the company's sales dive in an otherwise vibrant market where total industry phone sales jumped 17%. If Motorola has a repeat year, with another 27% decline, its handset sales will total 116 million. For comparison, even if the current No.5 - Sony Ericsson - slows its 38% annual growth rate to 20% this year, it will still end the year having sold 124 million phones.  To top of page

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