Motorola grows because of Android, Nokia in spite of it

Motorola (NYSE:MOT) and Nokia (NYSE:NOK) today announced successful fourth quarters in which both posted a large profit. While the catalyst – smartphones – was the same for both, the reason for their growth was completely at odds. Motorola grew because of its commitment to Android, and Nokia grew in spite of it.

Motorola’s fourth-quarter earnings were highlighted by $142 million in profit, compared to a loss of $3.66 billion this time last year. According to co-chief executive Sanjay Jha, Q4 volumes were almost completely driven by Android smartphones. With the launch of the Droid heavily promoted on Verizon Wireless under its belt, Motorola was able to ship two million Android-based devices around the world in Q4.

In a conference call on the results today, Jha admitted the company is just in the beginning stage of its transition into a smartphone company and that there’s a lot of work ahead, a sentiment that Nokia CEO Olli-Pekka Kallasvuo echoed in Nokia’s earnings call. Jha said that in 2010, the market remains competitive, but not without opportunities for growth. Motorola will ship between 11 and 14 million smartphones in 2010 and will introduce at least 20 Android smartphones throughout the year, he said.

“We have greater confidence in the smartphone, but we’ve seen softness in feature phones because of uncertainty in the prepaid market,” Jha said on the call. “We have a better understanding of that, but in smartphones we see good traction with carriers in the US, as well as outside of the US. Those factors have evolved in the last three months.”

Jha said that deterioration in the feature phone segment was localized, depending on the circumstances of the particular carrier offering the handsets. Motorola will continue to use its ODM strategy to maintain its retail name in these markets if not to make a profit. Across its smartphones, it will focus its experiences, which Jha said include social networking through MotoBlur, multimedia and enterprise offerings, depending on the requirements of its carrier partners and the geography they are in.

Jha said he expects first quarter shipments to be down, but he noted that it’s not unusual that to be the case with hero products like the Droid. He also said to expect significant improvement in the second half of the year with plans to be profitable in Q4. Overall, Jha said aggregate volume in 2010 will be down from 2009.

NOKIA MAINTAINS ITS TOP POSITION

Despite the increased level of competition from the Android camp, Nokia held on to its top seat, reporting a 65% rise in profit in the fourth-quarter. The company shipped a total of 126.9 million devices, a 12% year-on-year increase. Most of its devices were concentrated in Europe and the Asia-Pacific region, with North America only accounted for 3.8 million units.

Android devices from Motorola, Samsung, LG, HTC, Apple, RIM, Palm and others have put the squeeze on Nokia’s business, making its smartphone growth quite impressive, according to Julien Blin, principal analyst and CEO of JBB Research. Following the successful launch of its new touchscreen N900, Qwerty E71, E72 and E63, Nokia was able to continue its reign on both the smartphone and feature phone market. Blin said it’s likely to sustain this leadership for quite some time, and will be aided in the US by decision to offer its Ovi Map service free to consumers. Going forward, however, the competitive pressure won’t cease.

“Apple, which recently launched its highly anticipated tablet PC (the iPad), continues to have strong showing in terms of iPhone sales (8.7 million this quarter), will remain one of Nokia’s most serious competitors in the smartphone market, especially in the U.S. where Nokia is a non factor (captures less than 10% market share),” Blin wrote in a research note. “We continue to believe that the fact that Apple is now changing its business model from exclusive carrier deals to multicarrier deals per country where the iPhone is available is set to play a key role here.”

In both feature and smartphones, LG and Samsung will also remain major competitors, Blin added. LG is gaining traction in the low-end touchscreen smartphone market, selling 20 million units in just two years and plans to introduce new Android devices in 2010. Samsung has already launched several Android phones, including the Moment on Sprint and Behold II on T-Mobile. Competition from these Korean handset makers, coupled with HTC and RIM, which both have Android devices planned, means it won’t be an easy ride for Nokia either.

“Nokia’s choice not to support Android, given its commitment to Symbian, makes sense,” Blin said. “However, we continue to believe that it would make sense for Nokia to adopt the rival platform on select smartphones as Android continues to gain momentum and gets adopted by many of Nokia rivals…This could help Nokia sustain its lead in the smartphone market.”

But according to Craig Wigginton, a partner at Deloitte, the momentum in Q4 is a good sign for the entire smartphone industry.

“Typically, you would see some of these devices as nice to haves, not necessities,” Wigginton said, referring to both Nokia and Motorola’s smartphone portfolios. “They are more sophisticated and their price points are higher. But even with the economy, the growth in smartphones has been astronomical. We went from a nice-to-have to almost mandatory. If we can keep up the growth in the smartphone market in one of the worst economies we’ve ever seen, it shows a positive a sign for once the recovery kicks into high gear. You’ll see smartphone devices overtake everything.”