Motorola on Rocky Road
Speaking at a Bank of America Conference on Wednesday, Dave Devonshire, the CFO of the Schaumburg, Ill.-based company, said the first two quarters of this year will continue to be "rocky" for Motorola, although he didn't elaborate further.
The world's No. 2 cellphone manufacturer saw its fourth quarter 2006 profits fall 48 percent largely because of issues with its handset division. (See Motorola Profit Falls 48% and Moto Handset Chief Quits.)
Merrill Lynch & Co. Inc. says the company will continue to see issues with handsets and older network equipment in the first two quarters of 2007. "We believe the handset segment continues to be pressured by a weak mix, aggressive pricing, excess inventory and poor execution," the firm writes in a research note. "In addition, there is share loss in the Networks segment (GSM) and weak iDEN prospects."
Like Motorola, however, Merill Lynch is expecting margin improvements in the second half of the year. In part, this will be down to Motorola's plan to cut 3,500 staff in 2007 and 2008. Merill Lynch is also expecting improvements as Motorola upgrades its 3G phone portfolio and improves its supply chain, which should help cash flow. (See Motorola to Cut Handset Staff?.)
One potential fly in the ointment is so-called "activist investor" Carl Icahn, who recently carved out a 1.4 percent stake in Motorola shares and wants the company to up its share-buyback plans and to elect him to its board of directors. Merill Lynch describes Motorola as "hesitant" to implement the billionaire's proposals. (See The Wrath of Icahn.)
"In fact, Devonshire highlighted that Motorola is already deploying its cash effectively by raising its dividend, announcing a massive buyback program in mid-2006, and continuing to make strategic acquisitions," writes the research firm. "Therefore, it is unlikely to undertake a major shift [in] its cap structure, though our work shows this could be accretive to [earnings per share] and the share price."
— Dan Jones, Site Editor, Unstrung