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Moto Hangs Hopes on Android

Dan Jones
LR Mobile News Analysis
Dan Jones, Mobile Editor
2/3/2009
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Motorola Inc. (NYSE: MOT) posted a brutal $3.6 billion loss and a 26 percent revenue decrease for its fourth quarter this morning, as CFO Paul Liska took his leave and the company cut its dividend.

Motorola posted a loss of $3.58 billion, or $1.57 a share, on revenues of $7.14 billion. That compares to Moto's year-ago profit of $100 million, or 4 cents a share, on revenues of $9.65 billion.

The company reiterated that it is undertaking cost-cutting measures, including the loss of 7,000 jobs, meant to save $1.5 billion in 2009. (See Kicking Moto While It's Down and Moto Will Lay Off 4,000 More.)

The Schaumburg, Ill., company says its bottom line was hurt by several one-time items, including an allowance for deferred tax valuation, expenses related to layoffs, and goodwill charges. The company is, however, still feeling the pinch from falling sales at its handset unit.

The mobile devices unit’s sales were $2.35 billion, down 51 percent compared with the year-ago quarter. The operating loss was $595 million, compared to an operating loss of $388 million in the year-ago quarter. During the quarter, Motorola shipped 19.2 million handsets and estimates its share of the global handset market was 6.5 percent.

”We’re completely committed to making the handset business work,” co-CEO and Mobiles Devices chief Sanjay Jha said on Motorola’s conference call this morning. He couldn’t, however, say when that would mean that the unit would move from an operating loss to breakeven. “Sometime after 2009, whether it's 2010 or 2011, I’m not going to speculate,” Jha speculated.

Many of the 7,000 job cuts will come at the phone unit. The company says that around 1,000 employees have already been cut across the board and the axing will be completed by the end of the second quarter.

Motorola, meanwhile, plans to focus on the smartphone market and use Google (Nasdaq: GOOG)’s Android operating system to help it get there. Thirty to 40 percent of the unit’s R&D budget will go on smartphones this year, according to Jha. (See Moto Ditches Symbian for Android & Windows.)

The company is pulling back from its focus on Windows Mobile in 2009, however. “Yes we are still committed to Windows Mobile,” Jha said on the call. “[But] in 2009 we believe Android is more competitive… In 2010, when windows Mobile 7 will become available, we will focus more on Windows.”

The company has said its first Android phone will be ready for the holiday season 2009. Jha said on the call that the unit’s previous work on Linux and Java will allow it to “differentiate” phones using the operating system from other vendors using the same OS, which will likely include almost every major phone maker.

"This is Motorola’s last chance," writes Nomura International analyst Richard Windsor in a research notes. "I think that if Android fails to deliver the needed revenue and profit recovery, then the focus will be oriented on managing the business for oblivion."

Jha admits that he has a difficult road ahead of him. “We have our work cut out for us in 2009,” he says. All of this means that Motorola execs were pretty candid about having no timetable for the planned spinoff of the handset business, but they insist that it will still happen.

The company’s networking business is performing much better than the phone unit, as CEO Greg Brown highlighted. “We’re profitable in GSM, we’re profitable in CDMA, we’re profitable in iDEN, despite significant investment in R&D for 4G -- both LTE and WiMax -- with minimal return at the moment,” says Brown.

Home and Networks Mobility segment sales were $2.6 billion, down 5 percent compared with the year-ago quarter. Operating earnings increased to $257 million, compared with operating earnings of $192 million in the year-ago quarter.

The enterprise wireless networking business is doing best of all. Enterprise Mobility Solutions segment sales were $2.2 billion, up 4 percent compared with the year-ago quarter. Operating earnings increased to $466 million, compared with operating earnings of $451 million in the year-ago quarter.

Shares of Moto were down 0.51 (11.23%) to $4.03 in late morning trading on Tuesday. Moto shares have lost 68 percent of their value in the past 12 months, compared to the S&P 500 Index, which is down 40 percent.

— Dan Jones, Site Editor, Unstrung

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