Motorola Quiet on Device Turnaround

Motorola Inc. (NYSE: MOT) continues to hope that new and cheaper phones -- combined with cost-saving measures -- will lead it out of its device-induced slump in 2008. But the company won't yet predict when such a turnaround might happen.

The networking company reported a drop of 84 percent in net profits for the fourth quarter of 2007 this morning and says the worsening performance of its mobile devices unit will lead to a loss in the first quarter of this year as it tries to beat the competition and update its portfolio with new gadgets. (See Devices Drag Down Moto and Moto Reports Q4.)

Motorola reported a net profit of $100 million, or $0.04 per share, down from a year-earlier profit of $623 million, or $0.25 per share. Revenue was down 19 percent to $9.65 billion from $11.79 billion in the same quarter in 2006. Thomson Financial analysts had been expecting results of $0.13 a share on revenue of $9.6 billion for the quarter.

Motorola shipped 40.9 million handsets in the fourth quarter. The Schaumberg, Ill.-based firm's mobile devices revenue in the fourth quarter 2007 was down 38 percent to $4.8 billion, compared to 2006. The division recorded an operating loss of $388 million in the fourth quarter, compared to operating earnings of $341 million in the same quarter last year.

Devices will continue to be a drag in 2008. "We are anticipating an operating loss of 5 cents to 7 cents in Q1 of 2008" notes CFO Tom Meredith.

"The recovery in mobile devices will take longer than expected," Motorola's new CEO, Greg Brown, said on the earnings call. "We recognize there is a lot of work to be done.

On the call the company's executives wouldn't say if they expect the mobile devices unit to break even this year, adding that they will update guidance each quarter. The company wants to achieve $500 million in cost savings related to the unit but wouldn't reveal if this meant further job cuts.

"The first quarter will be a challenging quarter," Brown said. Motorola is expecting a further decline in device sales due to increasing competition in the market.

Despite questions from analysts on the earnings call, Motorola executives didn't say much in detail about how a potential economic slowdown in the U.S. might affect Motorola's overall gadget sales. The North American market continues to be Motorola's strongest global sector.

"China we except to continue to be a strong market, as will India and Asia as a whole... Seasonal trends will be more pronounced in Western Europe and North America," Meredith said.

Brown said that the company needs to fill holes in its device portfolio with more 3G and multimedia devices to boost sales. To aid with this aim, the company has added Qualcomm Inc. (Nasdaq: QCOM) as a chip supplier but says this partnership won't affect the bottom line until later in 2008. (See Motorola, QCom Get Close.)

Motorola executives, however, have been saying something similar about refreshing the company's gadget portfolio for the last several quarters. Despite this, the company hasn't yet managed to repeat the world-beating success of the original RAZR phone. (See The Perils of Being Slim.)

Thomson Financial is predicting that No. 1 handset vendor Nokia Corp. (NYSE: NOK) will benefit most from Motorola's device misfortunes this quarter. It expects Nokia will report handset sales tomorrow of 131 million units in the last few months of 2007, compared with Motorola's sales of nearly 41 million phones.

— Dan Jones, Site Editor, Unstrung

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