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When the sleek Motorola Razr V3 cellphone first hit the stores just over two years ago, it carried the price tag of a must-have status symbol: $500.
Now? About $30 with a two-year service contract.
Motorola’s fortunes have plunged along with the price of its Razr. Its profits have collapsed, and it announced plans last month to lay off 3,500 workers. Since last October, its stock has dropped 30 percent, attracting the attention of the billionaire investor Carl C. Icahn, who bought 40 million shares last week on a bet that he could push the company to do better.
At first glance, the company’s troubles are puzzling. Almost one billion mobile phones are sold worldwide each year, and Motorola has almost a quarter of the market. Consumers are also replacing their phones faster, on average less than every two years.
But the cellphone business is still relatively young, and Motorola is learning a cruel new lesson about consumer tastes in phones. An industry that has focused more on microchips, screen size and data speed is finding it has more in common with the fashion business.
Today, a phone’s value reflects not so much what it can do, but whether it is the envy of friends and colleagues.
Just ask a San Francisco designer, Robert Brunner. Mr. Brunner bought a Razr when it first came out, but he quickly noticed that others did, too.
“I started being one of six people at the meeting with a Razr,” he said. “It went pretty quickly from a coveted object to a commodity-design thing.”
He now carries a black Nokia 8801, which sports a stainless steel keyboard cover that glides open and elicits oohs and aahs from workmates. He winced when his 17-year-old daughter recently bought a Razr for $50, a few hundred dollars less than he paid.
A decline in price was inevitable. People expect to pay less for yesterday’s technology.
But while Motorola earned hundreds of dollars of profit on each Razr during its first year, it makes little on the newer, heavily discounted Razrs — a precipitous drop in profit margin that was behind last quarter’s earnings shortfall.
To replace that revenue, the company needs the same thing as every fashion giant: fresh hits.
Motorola declined to comment for this article, citing legal restrictions on how it can respond to Mr. Icahn’s activities.
But executives have said that in their bid to increase market share in the mobile phone business, the company discounted its older phones too aggressively and that newer models have not sold particularly well.
Analysts and consumers view many of these new phones as mere Razr knock-offs, with derivative, vowel-challenged names like the Pebl, Slvr, Rizr and Rckr.
“Phone manufacturers are only as hot as their last major hit — if they haven’t smacked it over the fence in a while, they’re in trouble,” said Carmi Levy, senior research analyst for the Info-Tech Research Group. “Motorola failed to follow it up with something similarly as big as the Razr.”
Just like fashion houses that shamelessly copy each other’s styles, rivals have also swarmed to duplicate the Razr mystique, flooding the market with thin-phone clones. Last year, Samsung unveiled the 6.9-millimeter-thick SGH-X820, which analysts called the “Slvr-kllr” because it is 40 percent thinner than Motorola’s skinniest handset.
Motorola hoped that its latest phone, the Krzr, would lure back style-conscious consumers willing to spend heavily on a phone. Inside, the Krzr is a completely different animal from the Razr. It has a faster processor, a better digital camera and has access to broadband wireless networks.
At $199 with a two-year contract, the price tag gives Motorola the profit margin it needs to satisfy investors.
But the Krzr also looks a lot like a Razr, albeit with a slightly thinner body, rounded edges and glossy finish. Analysts say that consumers are unwilling to open their wallets for something that appears, at least on the surface, to be yesterday’s style.
The wireless carriers seem to have suspected this. They have not promoted the Krzr heavily in North America, and AT&T — formerly Cingular Wireless, the company that introduced the Razr — did not even carry the phone in its stores for the first few months.
Perhaps most worrisome to Motorola’s fortunes, the Krzr does not appear to be eliciting the gotta-have-it reaction from as many consumers as the company hoped. At its recent earnings call with Wall Street analysts, executives conceded that the phone was not meeting expectations.
Albert Lin, an analyst at American Technology Research, paid $500 to obtain a Krzr a few days before the introduction, and carried it for all of one week before giving it to a friend.
