A new analysis by Sanford C. Bernstein & Co. indicates Google’s Motorola Mobility business unit is selling the new Moto G at an operating margin of less than 5%. A Motorola spokesman says the company does make money on every unit sold, but did not comment on how much that profit might be. According to TechInsights, the Moto G’s hardware costs Motorola approximately $123 to produce, while the company is selling it for $199 off-contract.
The analysis compares the Moto G to some other devices to help give some context. For example, the Samsung Galaxy S3 Mini generates about 20% in operating margin and a high-end device like the Samsung Galaxy S4 brings in a 28% margin. Others have estimated Apple’s latest devices the iPhone 5S and 5C run about 30 to 35% operating margins.
The challenge for Motorola is to entice buyers with low prices without triggering a price war. Doing so could work against Motorola on two fronts. First, it could create problems for them with component suppliers who are also trying to sell their own Android smartphones. Second, it could cause competitors, like Samsung, to look for alternatives to Motorola’s parent company Google and the popular Android operating system. Another potential issue for Motorola is a desire by carriers to keep prices as high as possible to help their own bottom lines.
Despite pricing its smartphones less than competitors, Motorola has posted operating losses of approximately $2 billion since its acquisition by Google. Although selling devices at a thin margin will make it a challenge for Motorola to turn things around financially, it could help position them for a new wave of competition expected from Chinese manufacturers like Xiaomi. That company sells devices, even in the high end market segment, at close to cost and relies on accessories for profits. A similar strategy is utilized by Amazon for its mobile devices where content serves as the source of revenue.
source: Wall Street Journal
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