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Handsets Hinder as Moto Posts Small Profit

Dan Jones
LR Mobile News Analysis
Dan Jones, Mobile Editor
7/31/2008

Motorola Inc. (NYSE: MOT) surprised analysts and posted a small overall profit for its second quarter today, but mobile devices continue to drag on the networking institution’s numbers. (See Motorola Announces Q2.)

In the second quarter, Motorola reported a net income of $4 million, an improvement on the year ago's loss of $28 million. And while revenue fell 7.4 percent to $8.1 billion, that still beat the $7.7 billion that analysts had been expecting for the quarter, which ended on June 30.

Motorola's share price is up $0.96 (12.5%) to $8.64 today.

The small profit was due to small sales increases plus deep cost-cutting at the handset division. The company has cut its workforce by more than 10,000 since last year. (See Moto Considers the Splits and Motorola Quiet on Device Turnaround .)

The handset division, which managed to increase unit shipments by more than 1 million quarter-on-quarter to 28.1 million though at a lower average selling price, remains a black spot for the company.

Its revenues fell 22 percent year-on-year to $3.3 billion, and the division's operating loss grew to $346 million from the $332 million loss reported 12 months ago.

Motorola is still currently the third-largest cellphone provider in the world after Nokia Corp. (NYSE: NOK) and Samsung Electronics Co. Ltd. (Korea: SEC).

The company isn’t yet predicting exactly when the handset business will turn around. “In Q3, we’re guiding slightly down sequentially with an improvement in the operating loss,” CEO Greg Brown said on the earnings call. He added that the company expects an upturn in the fourth quarter.

Strategy Analytics Inc. notes, however, that there are some signs of turnaround for next year. “If Motorola can slash costs and refresh its handset portfolio over the coming months, then a return to profitability in 2009 is possible,” says Strategy Analytics director Neil Mawston in a research note.

To these ends, Motorola finally put a date on the long-awaited spinoff of the handset unit. CFO Paul Liska said on the call that company expects to complete the spinoff in the third quarter of 2009. (See Motorola Once Again Reshuffles Business Units and Motorola Eulogy.)

In the meantime, Motorola is promising to launch 34 new devices worldwide in the second half of the year, twice the number of handsets it launched during the first six months. CEO Brown says that these devices will hit a number of price points and cover numerous wireless network technologies.

The CEO also says the vendor will deliver different form factors, but didn’t specifically answer questions on a possible touch-screen model. “There’s a lot of new form factors,” Brown said. “I think you’ll see us in many of those.”

— Dan Jones, Site Editor, Unstrung

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