Motorola Fires Up 3G Production

After months of delivering test prototypes to its customers, Motorola Inc. (NYSE: MOT) has finally started mass production of its WCDMA/GSM dualmode handset, the A830, at its Flensburg site in Germany.

The German production line will provide devices for the global market. "All the A830 models will come from the German plant -- for Asia as well as Europe, and theoretically for the U.S. when it gets its act together on 3G," says Bob Schukai, the vendor's 3G product director EMEA. [Ed. note: That will please the CDMA camp in the U.S.]

Motorola has been building and shipping prototypes from the German facility since July, says Schukai, and now it's in volume production and will deliver to its customers "this year." The only named operator clients are the German giant Siemens AG (NYSE: SI; Frankfurt: SIE) and the related Hutchison 3G UK Ltd. and H3G in Italy. "We have a commercial deal with Siemens whereby it will rebadge and distribute the handsets," explains Schukai. "We have some other commercial deals with operators, but we're not allowed to make them public just yet."

The relationship between the two major vendors may become even closer in the near future, of course (see Siemens/Motorola: Swap or Sale?).

The Moto Man was also unable to enlighten us on planned volumes, and, naturally, says the manufacturer was ready for anything. "Production volumes will be driven by demand. We are not supply constrained." He adds that there will be three different configurations of the A830 -- one with a camera, one without, and, from January, one with assisted GPS.

While Hutchison may be glad to have delivery of handsets from more than one supplier, it may well balk at the amount by which it may have to subsidize the devices. Motorola says the factory price of the device without the camera will be €1,199 (US$1,172); with the camera, €1,499 ($1,465). Cripes!

"It is frightening what this means for subsidies on the operator side, especially for Hutchison," says Christian von Kleist, a senior associate at Spectrum Strategy Consultants.

Von Kleist believes all the first-generation 3G terminals will encounter multiple problems and that these, along with the delays, are unsurprising. "Motorola is certainly later to mass production than expected, but this is not really surprising because of the problems with handover from GSM to 3G. The engineers, if not the wider public, always knew this was going to be very difficult. There will be a lot of new technology in these early handsets, and there will be many problems with them. It's just as well we don't have millions of people waiting to buy 3G handsets. But by the time we have a mass market for 3G -- maybe Christmas 2004 or in 2005 -- we should have robust devices."

So what does this production timescale mean for Motorola? "It will still be among the first to deliver dualmode handsets to the operators, but it's hard to say what this will mean in the long run," says von Kleist. "It was the first with GPRS handsets and had the market to itself for quite some time, but it was a dreadful handset -- the interface was complicated and time-consuming."

Although Motorola has improved this feature, it is still not in the same league as Nokia Corp. (NYSE: NOK), which dominates the handset market (see Nokia Extends Handset Share). "Nokia is very strong on the user interface. It's easy to use Nokia phones, and that's what is going to be important once we get to a mass market," says the Spectrum Strategy man.

— Ray Le Maistre, European Editor, Unstrung
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