Sunday, August 3, 2008

Motorola's Big Quarterly Profit Surprise

Motorola's Big Quarterly Profit Surprise


Could it actually be that things at Motorola (MOT) are improving? The embattled Schaumburg (Ill.) communications company posted a small quarterly profit of $4 million on July 31, up from a loss of $28 million during the same period the year before. The results surprised Wall Street analysts, who had been expecting losses to rise, and turned the tide after more than a year of disappointing results.

Still, don't be mistaken. The improvement was driven largely by the company's home, networks, and enterprise businesses, not the mobile phone unit. The non-phone segments delivered sales growth of 6% to 7% and double-digit operating earnings growth. The earnings report pushed Motorola's stock up 12%, to nearly 9. But American Technology Research analyst Mark McKechnie figures the non-phone businesses are worth 8 to 10 on their own, so investors are placing virtually no value on the mobile phone business.

Perhaps with good reason. Motorola's handset unit continues to struggle, with sales down 22%, to $3.3 billion, and the number of phones shipped down 21%. The steep declines come even as rivals Nokia (NOK), Samsung (SSNLF.PK), and LG all have reported double-digit increases in phones shipped.

Third Place Globally

Even in handsets, though, there is a silver lining for Motorola. The company managed to hold onto its third-place position in global market share with 9.5%, just a hair ahead of No. 4 LG's 9.3%, according to researcher Strategy Analytics. Nokia and Samsung are far ahead at No. 1 and No. 2. CEO Greg Brown says sales are expected to be down slightly during the seasonally weak third quarter from the second quarter. But he boasts that Motorola has better prospects further out, with plans to unveil about 34 phones during the second half of this year and an additional 50 products next year. "It's sort of like the bleeding is over," says Ittai Kidron, an analyst with Oppenheimer & Co. (OPY) "But there is a pretty nasty wound, and they still need to get stitches there."

Brown says the new lineup will help the company compete, particularly at the high end of the market against Apple (AAPL) and Research In Motion (RIMM). Apple's touch-screen iPhone and RIM's BlackBerry, with its full QWERTY keyboard, are among the most popular "smartphones," which let people manage e-mail and cruise the Web. "We expect to have more smartphones, and QWERTY devices, and touch and music phones," said an upbeat Brown in an interview with BusinessWeek, "so that we make the overall spectrum of products more robust."

Brown, who took over in January, has been overseeing the mobile phone business as it attempts a turnaround. Since the phenomenal success of the Motorola Razr a few years ago, the unit has been in steep decline. A recent industry survey shows that Motorola phones take up a meager 15% of the shelf space in wireless stores. And though Motorola remains No. 1 in U.S. market share, none of its phones currently rank among the top 10 sellers in the U.S.



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