Print

Mail

wiki links

Motorola shares tumble after warning

Motorola Inc shares tumbled as much as 12 percent on Friday after the company warned that a shortfall in its cellphone sales will cut into its fourth-quarter revenue estimates.

Analysts said the warning raises new questions about Motorola's strategy, underscoring that its continuing market-share gains have come largely by selling less profitable phones as the runaway success of its trendsetting Razr fades.

"We believe that the issues are not a one-time hiccup, but rather a reflection of a weak portfolio that struggles to replace a successful Razr model," Merrill Lynch's Tal Liani wrote in a note to investors.

The world's second largest cellphone maker said late on Thursday it expects to earn US$0.13 to US$0.16 per share on sales of US$11.6 billion to US$11.8 billion, versus a prior sales range of US$11.8 billion to US$12.1 billion. The earnings estimate includes about US$0.10 per share in charges. Motorola said the new estimate is below its earlier internal forecast at the start of the quarter.

On average, analysts surveyed by Thomson Financial forecast a profit of US$0.39 per share on sales of US$12 billion.

Its shares fell US$1.62, or 7.9 percent, to US$18.93 in morning trading on the New York Stock Exchange after sinking as low as US$18 earlier in the session, matching its lowest price since July 2004.

Motorola said an "unfavorable geographical and product-tier mix of sales" cut into the mobile device segment. Quarterly mobile devices unit sales were about 66 million units, up 23 percent from the third quarter and 48 percent from the fourth quarter of 2005.

"We are very disappointed with our fourth-quarter financial performance," said Ed Zander, chairman and CEO of the Schaumburg, Illinois-based company, "but we remain committed to the strategic direction and long-term financial targets we discussed at our annual analysts meeting in July 2006."

He said the company would discuss plans to improve operating profitability when it announces fourth-quarter earnings on Jan. 19.

The news prompted a raft of downgrades on Wall Street.

Phil Cusick of Bear Stearns said that Motorola's increased focus on selling inexpensive phones in emerging markets has come at a significant cost to its profit margins at a time when the recently released Krzr, the Razr update which features a music player and a camera, is not performing up to some expectations.

"Updated Razr models and the Krzr have not been able to offset Razr discounting and increased low-end contribution," he said in a research note.

Oppenheimer & Co called December's results disappointing.

"We expect that needed changes to the company's high-end product portfolio will require several quarters to implement," analyst Lawrence Harris said.

He also noted price reductions on both the RAZR and the Q over the last few months and lower-than-anticipated demand for the KRZR K1.

Both the networks and enterprise and the connected home segments are expected to meet or exceed internal expectations, Motorola said.
This story has been viewed 1692 times.