The company announced that it would close its factory in Fort Worth, Texas by the end of the year. The factory opened last May to calls from the handset unit chief, Dennis Woodside, for manufacturers to rethink what could and could not be produced in the United States and promising to shake up the conventional wisdom that it’s too expensive to make electronics in the United States.
Sadly, he was wrong. At its manufacturing high last year there were as many as 3,800 people working at the factory. Most of these were working for Flextronics International Ltd. (NASDAQ:FLEX) which Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) had contracted as a manufacturer. Presently, there are around 700 people working at the factory assembling the flagship Moto X.
Lower than expected demand for the Motorola Moto X
While a nice phone, Motorola only managed to sell 900,000 Moto X smartphones in Q1 this year. To put that in perspective, Apple Inc. (NASDAQ:AAPL) which is outpaced by Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL)’s Android operating system worldwide, sold 26 million iPhone 5S models in the same period of time.
Without a contract, The Moto X was originally sold for $600 without a contract but was quickly lowered to $399 following a lack of demand. The Apple 5S is still sold for $650 without a contract but continues to move off the shelves.
Just for months ago, Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) announced that it would sell its Motorola handset business to the Lenovo Group (LG) for $2.9 billion as LG looks to expand into the North American market. The decision to close the factory was made independently of this planned sale and the Moto X will still be made in China and Brazil as well as other countries.
Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) knew going into the factory investment that shipping and labor costs would be higher than overseas factories. They had hoped, however, that demand would be sufficient to offset these costs by achieving an economy of scale that never occurred.
Motorola has moved away from the Moto X since December when the company announced that it would look to smaller profit margins on “value” smartphones. The Moto G has a list price of $219 without a contract and the newly released and positively reviewed Moto E has a list price of $129. Both phones have sold well since their introduction especially in Brazil and India.
“Manufacturing or assembling smartphones in the U.S. was always going to end in tears for Motorola,” Strategy Analytics analyst Neil Mawston said. “The U.S. is well positioned to design smartphones, as Apple does successfully, but manufacturing them is a whole different ballgame.”