Updated from 12:50 p.m. ESTMotorola's ( MOT) do-or-die mobile plan is to focus on mid-priced smartphones. In a market split between high-demand, low-price phones in developing markets and high-end phones, the biggest growing segment of the industry, Motorola hopes to seize the opportunity in the middle. In a bold gamble to attack this market, however, the No. 5-and-falling phone maker is teaming with Google's ( GOOG) Android project for the software to run its phones. The plan is part of a decisive bid for survival at Motorola as laid out by co-CEO Sanjay Jha on an earnings conference call with analysts Tuesday. The strategy includes a huge cut in staff, an exit from the vicious competition in cheap phones and a big bet that lower-price smartphones will turn the company's fortunes around. The desperation of the plan became more evident after the company reported disappointing earnings and lower-than-expected first-quarter guidance. Looking ahead, while the company is removing more than $1 billion in costs and ending its dividend payout, it says it will end this year with less cash than the $7.4 billion it is sitting on today. As an added twist, the surprising "effective immediately" departure of CFO Paul Liska wasn't exactly the sort of financial endorsement Motorola fans were looking for. Motorola shares fell more than 11% in trading Tuesday. According to Jha, Motorola's future lies with touchscreen and QWERTY-keyboard equipped smartphones. While Motorola will continue to produce phones using Microsoft ( MSFT) Windows Mobile 6 software, new smartphone development this year will use the Android system. At some point in 2010 Motorola plans to make phones using Microsoft's upcoming Windows 7 program, Jha said on the conference call. (Photo gallery: Smart Phones )
Jha defended the Android decision by offering that the lower-cost platform has a thriving application development community that could help differentiate the phones from the pack. Presumably, Motorola envisions a $100 smartphone in a market teeming with $200 offerings. Motorola aims to land below the popular Apple ( AAPL) iPhone and Research In Motion's ( RIMM) bushel of BlackBerries. This high-end market also includes solid offerings from HTC,which has its own Android phone, Samsung, Nokia ( NOK), soon Palm ( PALM) and eventually Dell ( DELL). Obviously Motorola's success will depend on the quality of the Android phone -- as yet largely unproved -- as well as the price. "There's certainly a bigger market for a $100 phone, but price isn't of paramount importance to consumers looking at smartphones," says Richard Klugman, a consumer electronics analysts with Majestic Research. The problem with aiming at the unfashionable middle brow is that the potential customers are already paying first class for their service plans, says Klugman. "Consumers aren't oblivious to the higher costs of the data plans," Klugman says. "So they're probably not looking to scrimp on the phone they buy."