UPDATE: Shrinking Smartphone Cycle Means Little Room For Error

23rd Jun 2010 22:03

(Updates with comment from Motorola executive.) By Roger Cheng Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--With the interval between hot smartphones shrinking, handset makers have little margin for error to score an immediate hit. On Wednesday, Verizon Wireless unveiled the Motorola Inc. (MOT) Droid X--the latest phone to take on the Apple Inc. (AAPL) iPhone. The device is emblematic of the fast-moving smartphone business. The Droid X is already the third flagship phone Verizon Wireless has pumped up going back to the end of last year. The breakneck pace presents a dilemma for handset makers, which devote large amounts of resources into a high-end device only to get a few months of marketing support from the carriers before they move on to the next big thing. "If you don't get the sales you need in that three- to four-month period, you've missed your window," said Avi Greengart, an analyst at Current Analysis. The role of the flagship phone, often known as a "hero" or "halo" device, has changed over the past few years. Prior devices like the then-trendy Motorola Razr held on to its marquee status for more than a year, and the iPhone, aside from an annual update, has remained AT&T's top product for the past three years. In an attempt to counter the iPhone's success, carriers have put out halo phones with increasing frequency, which has meant roughly three months for the handset maker to score a blockbuster. Verizon Wireless, in particular, has been aggressive with Google Inc.'s (GOOG) mobile operating system, going so far as to license the Droid name from Lucasfilm Ltd. to carve out an identity for its own batch of high-end Android phones. "It's about building a portfolio," said John Stratton, chief marketing officer of Verizon Wireless. "We don't see a duplication of capabilities." Rather, he said, each iteration addresses a different demographic. For handset makers who can successfully launch a phone, the payoff is huge, Stratton said. Motorola has been the primary beneficiary. It created the original Droid, and beyond the Droid X, is expected to have another high-end smartphone come out for Verizon Wireless later this year. Winning hero status has become crucial because it means the backing from carriers, which are spending unprecedented amounts of advertising dollars focused on individual devices. But there remains risks for the handset makers. The last major phone from Verizon Wireless, the Droid Incredible from HTC Corp. (2498.TW), enjoyed huge demand but was hamstrung by component shortages. As of Wednesday, the phone is backordered until July 20. Verizon Wireless CEO Lowell McAdam had said that he could have sold twice as many Incredibles if there were enough units. But HTC may have missed its window as the carrier shifts its focus to the Droid X. "It makes it an all-or-nothing approach for vendors providing the phones," Current Analysis's Greengart said. "The stakes have been raised." HTC, however, believes the phone will continue to sell despite Verizon Wireless's focus shifting away from the phone. "Either way, the Incredible will stand on its own merit quite well," said spokesman Keith Nowak. Rather than see it as a weakness, Motorola Chief Executive Sanjay Jha said the shorter cycles allowed the company to innovate faster. Verizon Wireless also risks overwhelming customers with a bigger and better phone every few months. Customers could grow immune to constant hype over a new device. Stratton, however, said he isn't concerned about consumer exhaustion, adding there remains an incredible growth trajectory for these kinds of devices. Verizon Wireless is jointly owned by Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD). Casting a shadow over both devices is the iPhone 4, which goes on sale Thursday. AT&T said it already received 600,000 preorders last week, and was forced to stop offering the phone after the first day. UBS estimates Apple will sell 1 million iPhone 4s on Thursday. The iPhone 3GS took three days to hit the 1 million sales mark. (Sara Silver contributed to this report.) -By Roger Cheng, Dow Jones Newswires; 212-416-2153; [email protected] (END) Dow Jones Newswires June 23, 2010 17:03 ET (21:03 GMT)