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Unmaking Motorola's Q

JULY 20, 2006
Technology
By Arik Hesseldahl

http://www.businessweek.com/technology/content/jul2006/tc20060720_211102.htm?chan=topStories_ssi_5

What's inside the cell-phone maker's answer to Research In Motion's BlackBerry, and how much does it cost to make it?

The smartphone wars have a new entrant: Motorola (MOT). And as they battle to get consumers pecking away at a handheld with their thumbs, Research In Motion and Palm can't help but take notice.

Released earlier this year to fanfare, Motorola's Q is aimed squarely at helping the cell-phone maker win business from RIM (RIMM) and Palm (PALM) among a highly coveted constituency: hardcore wireless messaging users (see BusinessWeek.com, 7/7/06, "Motorola's Quirky New Smartphone")

If it's anywhere near as successful as the RAZR and SLVR phones that preceded it, the Q will probably help Motorola put price pressure on RIM and Palm and could force RIM to add features it has previously eschewed.

WHAT'S INSIDE. According to market research firm iSuppli, which has done a tear-down analysis of the Q, it costs Motorola about $158 to build the phone. That includes components and assembly but excludes other expenses such as marketing, distribution, and licensing fees to Microsoft (MSFT), which makes the phone's Windows Mobile operating system.

The Q is sold by Verizon Wireless, the joint venture of Verizon (VZ) and Vodafone (VOD), at a heavily subsidized $199 with a two-year service contract, and $349 with a one-year contract. Typically, the mobile-phone service provider absorbs some of the cost of subsidizing a handset or other wireless equipment.

The Q's single most expensive component, says iSuppli analyst Andrew Rassweiler, is the LCD display. He says the cost is $25, although it's unclear what company makes the display. "Whoever made it didn't want to be identified," Rassweiler says.

Sources of other parts of the Q are clear. Intel (INTC) has two parts in the phone, a $19 XScale microprocessor and a flash memory chip. The XScale chip is produced by the unit of Intel that is being acquired by Marvell Technology (MRVL).

Qualcomm (QCOM) supplied a chip called a digital baseband processor (about $14) that helps the device connect to digital wireless networks. Rassweiler says the Q phone marks the first time he's seen that particular Qualcomm chip. Qualcomm supplied four other parts, including a power management chip. Other suppliers included Texas Instruments (TXN); Broadcom (BRCM), which supplied a Bluetooth chip; Freescale Semiconductor (FSL), which supplied a USB chip; and M-Systems (FLSH), which supplied flash memory chips. Micron Technology (MU) supplied the CMOS imaging chip, and Skyworks (SWKS) contributed two power chips.

HOW THEY STACK UP. The materials and manufacturing cost of the Q is higher than that of RIM's current flagship handheld device, the Blackberry 8700. The 8700 cost about $123 to make, and it sells for $299 from Cingular Wireless, owned by AT&T (T) and BellSouth (BLS), and from Deutsche Telekom's T-Mobile (DK).

But the 8700 differs from the Motorola device in several ways. For one, it doesn't play video or music, and unlike the Q, it doesn't have a camera. Palm's Treo 700p has both a camera and plays music and video. The difference between them is starting to show. RIM co-CEO Jim Balsillie has recently hinted Blackberry devices with cameras and music and video capability might start showing up soon. ISuppli hasn't yet torn down the Treo and so couldn't speculate on what it costs Palm to build. But Sprint Nextel (S) and Verizon Wireless sell the Treo 700p for $399.

Motorola has said that it expects to sell some five million Q phones, which would make it a formidable competitor to the BlackBerry. That device, dubbed the CrackBerry because fans are addicted to it, is used by some 5.5 million people, RIM said when it reported the results for its most recent quarter.