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Motorola Punches Rivals Below the Belt

If Motorola's (MOT) bold recovery plan was boiled down to one bullet point, it would read: $99 smartphones.

Forget the past glories of having dozens of phones tailored to hundreds of markets around the world, or the singular design achievement of the Razr phone. Motorola is trimming down for a middleweight fight in the gritty arena of cheap smartphones.

This make-or-break strategy is the brainchild of Co-CEO Sanjay Jha, who came to Motorola from wireless chipmaker Qualcomm (QCOM) last year. Jha spied an opportunity in a growing market -- the underbelly, if you will -- where other contenders weren't looking.

With the help of Google's (GOOG - Get Report) Android operating system, Motorola is focused on a segment of the market below the heavyweights like Apple's (AAPL - Get Report) iPhone, Research In Motion's (RIMM) BlackBerries, Nokia's (NOK - Get Report) smartphones and even Palm's (PALM) hotly anticipated Pre.

According to comments Jha made to analysts during the February earnings call, the new Android-powered phones give Motorola a fighting chance. "This puts us in a position for important product slots in the fourth quarter and first half of 2010," Jha said.

Smartphones are the hottest game in gadget town. And Android is one of the cheapest and potentially one of the most popular operating systems on the market. If Motorola can apply some of its legendary design talents to a host of Android-powered $99 smartphones, the fallen cell phone titan could regain its footing.

Palm's stock is up 200% this year on the strength of Pre and its WebOS operating system. Of course a big part of that up-from-the-ashes story is the investment belief that Palm will get purchased by a larger player like Hewlett-Packard (HPQ - Get Report), looking to get into the smartphone business.

Meanwhile, Motorola's stock is up a mere 6% for the year as Wall Street waits for more proof that the enterprise isn't doomed. But Motorola has been showing some resolve by swinging the ax, even recently exceeding its job cut targets as it tries to make a turnaround.

There's a chance that Motorola's cheap smartphones could duplicate what netbooks are doing to the PC industry. Just as cheap laptops are eating a portion of H-P, Dell (DELL), Microsoft (MSFT) and Intel's (INTC) business, a $99 Motorola phone could steal some smartphone customers in a tough economy.

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