Google sold the Motorola phone business and pulled the plug on the U.S. manufacturing effort.
As the first Motorola phone designed under Google, Moto X generated considerable buzz.
Within the first few weeks, Randall said it was clear to leadership that the Moto X was underperforming.
Any extra costs, such as is the case with U.S. manufacturing from higher wages, can be financially painful.
Instead of trying to compete with Apple, Motorola, under Lenovo, would focus on making cheaper phones aimed at customers in developing countries.
In a blog post announcing the new smartphone made in America, the company boldly blasted the conventional wisdom that it wasn’t possible. Experts stated that the US labor force is too rigid, that the US has lost its manufacturing capacity, and that costs are too high in the US. “.”.
Soon, tens of thousands of brand-new, glossy touchscreen phones were being produced daily at a Fort Worth, Texas, plant, and what had initially appeared to be a risky venture started to take on the appearance of being a significant venture—a daring gamble on American manufacturing at a time when the massive smartphone company Apple was dependent on factories in China, which had cheap labor and hordes of suppliers ready to produce electronic components.
That was in 2013. The company that made the wager was Google, which had purchased Motorola Mobility, a former phone manufacturer, and was using its extensive resources and cutting-edge technological know-how to ensure the success of the Moto X smartphone.
It was all over after only a year. Google discontinued operations on the U.S. and sold the Motorola phone division. S. . production effort. It was the final time a big business attempted to make a U. S. manufactured a smartphone.
Google’s brief on-shorting experiment is a footnote in the company’s nearly three-decade history of business endeavors and projects, and the story of it has mostly been forgotten. However, Google’s experience—specifically its triumphs, unexpected advantages, and failures—is now more pertinent in light of President Trump’s push to force Apple and other tech firms to manufacture their devices in the United States. S. . soil.
The President has threatened to impose tariffs of at least 25 percent on Apple unless it reshores a significant portion of its iPhone production from Asia in the last few weeks.
Getty Images/Mike Fuentes/Bloomberg.
The Google Motorola case study offers important insights into U.S. S. manufacturing of smartphones that are still relevant today, along with a number of fascinating hypothetical scenarios. Was it Google’s changing corporate priorities, the economic realities of globalization, or the competitive smartphone market that ultimately doomed the project? Would more time or better marketing have changed the outcome?
Five former Motorola workers who were directly involved in the company’s U.S. launch were interviewed by Fortune in order to piece together the history. S. . assembly push, in addition to a large number of analysts and industry experts. Steve Mills, the current chief operating officer at Foresite Cybersecurity and the former chief information officer at Motorola Mobility, recalled, “We felt scrappy and felt we could carve out a niche for ourselves.”.
According to several former Google insiders, they began the endeavor with great expectations but soon discovered that some of their presumptions were incorrect and that, despite the emphasis on manufacturing, sales were insufficient to meet the company’s lofty objectives as set forth by the leadership.
trying to gain an advantage.
Not just because of its production location, the Moto X, the plan’s flagship phone, stood out from the competition. In the future, Motorola would allow customers who bought the phone directly from its website to personalize it with dozens of different colors and materials, including walnut and bamboo backs, as well as unique features like engraving.
The business believed that by providing customized phones, it would be able to outperform competitors Samsung and Apple, who only offered standardized lineups. Additionally, the on-shoring strategy—manufacturing phones in the United States—was suitable for the customization. S. instead of making domestic customers wait, Motorola would be able to deliver them in four days, saving money on shipping.
Motorola used the device’s heritage as a patriotic counterpoint to the competition made in other countries. The opening celebration of the plant was so significant that the governor of Texas at the time, Mr. There were billionaire Shark Tank investor Mark Cuban and Rick Perry.
Bloomberg/Mike Fuentes via Getty Images.
Flextronics—now known as Flex—was the contract manufacturer that ran the Fort Worth factory, which is approximately an hour’s drive from Dallas. Employees at the plant used components imported from Asia for final assembly only in order to save money.
Naturally, labor costs were higher than in China; at the time, company executives claimed that workers were paid an hourly wage that was roughly three times higher than in China. But considering the other benefits, it was a fair trade-off. In a previous interview, Dennis Woodside, the CEO of Motorola Mobility at the time, claimed that the customized phones were turning a profit.
Motorola sold standardized versions of the Moto X to wireless carriers in addition to the customized models; this arrangement helped to maintain a minimum level of demand and factory production.
Apple versus…. Trump.
Apple does not manufacture customized iPhones, but if it were to swiftly move iPhone production to the United States, it would probably encounter many of the same issues as well as some new ones. A. as demanded by Trump. There are still higher labor costs. And the majority of domestic suppliers are based in China, making them scarce.
Experts predicted that in order to turn a profit, Apple would need to drastically increase the price of the iPhone, at least initially. As opposed to $1,000, U. S. In a recent research note, Dan Ives, an analyst at Wedbush Securities, estimated that -made phones would need to retail for up to $3,500. He concluded that it is a “fairy tale” that Apple would ever produce the devices domestically. “”.
Apple has expedited a multi-year shift in iPhone sourcing over the last six months in an effort to lessen its exposure to Trump’s tariffs. The company currently ships the majority of its U.S. goods from China, which was once the focus of Trump’s highest import taxes and its primary manufacturing hub. S. . -bound phones with lower tariffs from India.
Getty Images via MANDEL NGAN/AFP.
There is still uncertainty about how the trade war will ultimately unfold. Trump is still negotiating additional import taxes and has postponed some of them.
However, his remarks on the conservative social media platform Truth Social in May indicate that he is against Apple’s current workaround. In the message, he demanded that Apple “must build its iPhones in the United States, not India, or anyplace else.”. “”.
Tim Cook, the CEO of Apple, has said that Asia is a better place to manufacture than the United States. S. In an interview at a Fortune conference in 2017, he insisted that the reason was unrelated to the wage gap. Cook claims that China was no longer a cheap place to work years ago. Instead, the advantage of the nation lies in the much higher availability of skilled workers, like the tooling engineers who design and mold components and are commended for their accuracy.
“In the U. A. Cook stated on stage, “I’m not sure we could fill the room if you had a meeting of tooling engineers.”. There are enough football fields in China. “”.
This year, Apple pledged to invest $500 billion in the United States in an attempt to placate Trump. S. . the following four years. According to the company, a portion of that funding will be used to build servers for its data centers in Houston. However, there has been no mention from Apple of returning iPhone production to the United States. S.
imported personnel and machinery.
For the Moto X, Flextronics had foreseen a lack of qualified engineers in the United States. S. In order to circumvent the issue, it recruited engineering talent from its factories located all over the world, including in Hungary, Israel, Malaysia, Brazil, and China, and indulged in relocating them to Fort Worth in order to expedite the operation.
The head of Motorola’s operations and supply chain, Mark Randall, stated, “We had to bring in a very cultural cast of characters.”.
He added that the region’s designation as a telecom manufacturing corridor made it simpler to hire managers and supervisors locally, as well as rank-and-file assembly line workers. The majority of the facility’s nearly 3,800 employees at its height didn’t need extensive training.
In the summer of 2013, production began at the plant, which is roughly the size of eight football fields. The operation took place in an industrial park that was designated as a foreign trade zone and had its own cargo airport, which was formerly the Nokia phone factory. Due to the location, Motorola was able to import some parts from Asia with reduced tariffs. But the savings wouldn’t start until the business chose to export some of the phones it made there to other nations.
According to Randall, who is currently a startup board member and supply chain consultant, Texas is a welcoming state for manufacturing. The state offered Motorola a tax break for employee training, he said, as just one illustration of the cordial welcome.
Bloomberg/Mike Fuentes via Getty Images.
A significant amount of machinery, including conveyor belts, had to be installed in order to set up the Moto X plant. Some were shipped from China, such as specific testing apparatuses. As they completed the numerous steps needed to complete a phone, workers stood at blue tables arranged in tidy rows, wearing smocks and gloves to shield the electronics from lint and dirt. Above each station, computer screens were glowing.
Plastic components, such as the phone’s back cover, were typically fitted by hand. Robotics was used to test specific parts during assembly to ensure proper operation and to add components like touch screens.
As production increased, process engineers searched for bottlenecks and rearranged the assembly line. They occasionally patrolled the line with stopwatches. The goal of increasing efficiency was a continuous focus, just like with any other plant.
The Moto X created a great deal of buzz because it was the first Motorola phone created under Google. The unlocked entry version of the Android device, which cost $579, featured a rounded backside and a groundbreaking voice control feature. Simply saying “Okay, Google now” allowed users to set up reminders, obtain driving directions, and activate the feature.
According to Mills, the CIO, “it was a cool sexy phone.”. “I bought it for my children. “.”.
According to Randall, the supply chain expert, the Moto X also excited the mobile network carriers, albeit in part for their own benefit. The carriers would have more negotiating power with Apple over the wholesale prices they paid for subsequent iPhones if the device sold well.
In the end, however, the Moto X received mixed reviews from critics. They criticized the device for having poor storage in the entry-level model (16GB) and lower screen quality than the competition, but they also commended the device’s overall design and customization options.
“Made in America wasn’t resonating.”.
Workers at the Fort Worth plant soon began producing up to 100,000 phones every week as it got going. Motorola had to briefly rescind its pledge to deliver phones to customers within four days because the plant’s employees were initially overworked. But the volume gradually decreased. According to Strategy Analytics, Apple sold 26 million of its new iPhone 5s in the first quarter of 2014, while Motorola sold 900,000 Moto X phones globally.
Motorola reduced the Moto X’s price to $399 five months after it made its debut. Less than one-fifth of the factory’s workforce, 700 people, remained after nine months.
Randall claimed that the leadership could see the Moto X’s poor performance in the first few weeks. Production had to be ramped down.
Sales-wise, the phone wasn’t a total bust, but it also wasn’t a huge success. After the phone’s design was improved, staff members stated that they anticipated future models to perform better. In contrast to the substantial sums of money that Apple and Samsung spent on TV and print advertisements, many pointed the finger at a small marketing budget. They claimed that since the Moto X was a new model, it required a more eye-catching advertising campaign or a stronger message to spread the word.
It turned out that one of the company’s major presumptions regarding the phone was incorrect. After placing a large wager on U. A. The company recognized that the majority of customers didn’t care where the phone was made, so it started using the red, white, and blue in its marketing.
According to Mark Rose, a former senior director of product management at Motorola who currently serves as a consultant for product managers, “one of the learnings was that assembled in America wasn’t resonating.”.
If Apple opened a U.S., it might not have to deal with the same problems as Motorola. A. plant for smartphones. Their enormous size disparity might have a significant impact.
Motorola found it difficult to realize the cost savings from producing the Moto X in large quantities due to weak demand. Conversely, Apple has yearly U. S. . With tens of millions of iPhones sold, economies of scale could be more readily realized.
Motorola’s choice to allow customers to personalize their phones when placing online orders added to the company’s difficulties. It was not feasible to fully assemble those devices in advance, which would have improved the plant’s efficiency. Customers were more likely to be dissatisfied with the color scheme they selected, which also resulted in higher return rates—an expensive issue for any business. Apple doesn’t worry as much because of its standardized lineup.
Due to its track record of success, Apple also has a lot of power and influence over its suppliers, which it can use to bargain for cheaper prices on iPhone parts. With its position at the back of the pack and the uncertainty surrounding the success of its new Moto X phone, Motorola had little influence.
Low profit margins are a result of the fierce competition Motorola and the majority of other Android phone manufacturers face. Any additional expenses, like those faced by U. S. . Manufacturing at higher wages can be costly. On the other hand, Apple’s iPhone is a high-end product with a premium margin. Because of this, the business could more readily afford the extra cost of making it in the United States. S.
After 12 years.
In January 2014, Google decided to sell Motorola to China-based Lenovo for $2.09 billion, largely due to shifting priorities. A few months later, while the phone manufacturer’s sale was still pending, Google declared it would completely move production of the Moto X from Fort Worth to China and Brazil, where costs were lower. Under Lenovo, Motorola would concentrate on producing more affordable phones for consumers in developing nations rather than attempting to compete with Apple. After declaring that the Fort Worth plant would close, Motorola president Rick Osterloh told the Wall Street Journal, “What we found was that the North American market was exceptionally tough.”.
Selling would solve Google’s other issue, which was grabbing by phone manufacturers who installed Android software on their devices. Following its acquisition of Motorola, they claimed that Google was now directly competing with them. The rebellion needed to be taken seriously by Google. It would be extremely detrimental to Google if those partners abandoned Android since it would make it more difficult for mobile users to use its services.
Google’s initial justification for purchasing Motorola also played a role in the sale. In addition to purchasing a phone company, Google also acquired Motorola’s extensive patent portfolio, which it believed would help it defend against an increasing number of Android-related lawsuits. Competitors Apple, Microsoft, and others had accused Google and its phone manufacturing partners of violating their intellectual property rights by using the operating system. Google retained the majority of the patents when it sold Motorola to Lenovo, obliquely admitting that they were worth more to it than a handset company with poor sales.
Eventually, Motorola’s U.S. S. . By all accounts, adventure had little to do with the location of the Moto X’s assembly. Simply put, sales of the phone were insufficient to support a U.S. A. assembly line. .
“If it had sold better right away, the entire story would have been different,” said Gabe Madway, who is currently employed at online investment management company Wealthsimple and was formerly with Motorola’s public relations department.
Artphone. The photographer.
Even more bluntly, Randall stated that U had “very little” to do with the phone’s malfunction. S. . manufacturing, and the fact that the iPhone is a better gadget with a more recognizable brand than the Moto X.
Naturally, a lot has changed in the past 12 years that could make or break a new U.S. S. push for manufacturing from a business like Apple. For instance, factory automation has advanced significantly, allowing for further cost savings in any U.S. A. smartphone factory today as opposed to earlier.
However, some things have remained the same. It would be nearly impossible to quickly add thousands of workers to speed up production of a device that had more sales than expected in the United States. S. It’s commonplace in China.
“The ability to flex that workforce is insane,” Randall said of China, referring to a ramp that went extremely well. “That workforce’s capacity to be reduced is insane.”. “”.
There are also comparatively few U. S. . -based vendors capable of manufacturing enough electronic parts for millions of phones. Additionally, it would probably take years to expand the pool. In the meantime, if Trump’s “Liberation Day” tariffs, which were proposed in April, fully take effect, importing parts—the obvious alternative—may become unaffordable. Companies find it challenging to plan ahead for large investments like phone assembly plants because the president regularly changes his mind about the levies.
Former Motorola CIO Mills stated that it would be simpler for Apple and other phone manufacturers to establish U.S. S. producing. rather than making all of their phones in the United States. By completing only the final assembly domestically, as Motorola attempted, they could avoid tariffs.
According to Mills, “a lot depends on what Trump means by Made in America.”.
According to Ross Rubin, an analyst with Reticle Research, Apple could also establish a small domestic production facility to create a “prestige or limited edition” iPhone. Apple could avoid the far more costly option of onshoring a significant portion of its iPhone production by charging a premium for the device, say $2,000, and allowing Trump to declare victory, he said.
There is no doubt about it: Motorola’s Made in America experiment lasted for just over a year, and no other significant smartphone manufacturer has ventured to try something comparable in over ten years.
