Motorola's Android Challenge

LAS VEGAS ( TheStreet) -- Motorola Mobility ( MMI) reiterated its commitment to Google's ( GOOG) Android OS at the Consumer Electronics Show this week, with the announcement of a raft of new devices including its first tablet, the Xoom.

However, the promise of fresh smartphone and tablet revenue could bring new challenges for the newly-independent Motorola phone division, which faces an uphill battle in the fierce smartphone handset market.
Motorola's first tablet, the Android-powered Xoom.

Matt Thornton, a senior analyst at Avian Securities, said that the electronics giant will get a near-term boost from Android, but warned that the increasingly popular OS poses longer-term challenges.

"For the next two to three years, companies can benefit from the Android tailwind, but differentiating in that Android camp will be increasingly difficult," he told TheStreet. "There will be pricing pressure and you have to really build your brand."

More than 60 million devices deploy Google's Android OS, according to analytics firm Flurry. And while Flurry's most recent report showed that Motorola's global share of Android activations increased from 18% to 24% from 2009 to 2010, two other growing OEMs, HTC and Samsung, are the market leaders. HTC, which is planning to launch at least four 4G devices this week at CES, takes 32% of the Android market and Samsung holds 27%.

As a result, Motorola needs to put "a very solid stake in the ground" according to Thornton, devoting plenty of resources to building both brand recognition and service provider trust.

Motorola has had a good sales run with Verizon ( VZ), where it will sell both the Xoom and its new Bionic smartphone. AT&T ( T) also touted the new Motorola Atrix on Wednesday, a 4G smartphone.

Motorola has first-mover advantage with Google's latest version of its Android OS, Honeycomb, which was designed specifically for tablets. According to Motorola, the Xoom features multi-tasking and Web browsing, as well as updates to many Google apps that have been reconfigured for the tablet form.

"We think that Android today is the fastest-innovating ecosystem," Sanjay Jha, the CEO of Motorola Mobility, told TheStreet at CES, pointing to the 160,000 apps that are now available on Android.

Of course, that's a considerably less amount than what's available for Apple's ( AAPL) iOS, which has more than 300,000 apps in its store. Apple's iPad is also predicted to retain its lead position in the tablet market this year, with analysts predicting 2011 iPad sales of up to 40 million units. (Apple is also reportedly prepping new, improved iterations of the iPad.)

"It's going to be really difficult because every company under the sun wants to get into the tablet and handset market," added James Brehm, an analyst at Frost & Sullivan, nodding to the dozens of tablets expected to debut this week at CES. "Look at Vizio and its tablet launch -- it's a TV company."

Nonetheless, Avian's Thornton expects Motorola to gain share in both the smartphone and tablet markets over the coming years, although the electronics giant is, of course, starting out from zero share in tablets.

"I think that there were a lot of people waiting for a tablet that runs a tablet OS and not a phone OS," said Brehm. "There is a lot of pent-up demand for what Motorola has done."

--Written by James Rogers in New York.

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