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Fri, Jul 13, 2007 - Page 10 News List

Motorola expects drop in profits

NY TIMES NEWS SERVICE , NEW YORK

The management of Motorola Inc, the ailing mobile phone maker, has promised to turn the company around. Instead, Motorola's troubles worsened on Wednesday when it announced that sales and profits would fall considerably short of earlier projections.

The news touched off renewed calls from some investors for the ouster of Motorola's chief executive, Edward Zander, and predictions from at least one industry analyst that Zander's tenure could be coming to a close.

In a statement issued after the close of the stock market, Motorola said it expected its second-quarter sales to be US$8.6 billion to US$8.7 billion, far short of the US$9.4 billion it projected earlier.

The company, blaming slower-than-expected handset sales in Asia and Europe, also said it expected to post a quarterly loss of US$0.02 to US$0.04 per share.

On average, analysts had expected the company to report a profit of US$0.02 per share. Motorola will report second-quarter results next week.

Some industry analysts and investors said they were not surprised by the shortfall but were disappointed by its magnitude.

"It's very big," said Edward Snyder, a telecommunications industry analyst with Charter Equity Research. "The Street was already bearish, but Motorola has fallen below expectations."

The disappointing earnings projection further hurts confidence in Zander, Snyder said.

"It's concrete evidence that whatever he was doing to turn the company around is not working. In fact, things are getting worse, not better," he said.

Motorola enjoyed a brief golden era after it introduced the Razr, its iconic clamshell phone, in 2004. It sold more than 100 million of the phones, which became synonymous with stylish mobile technology.

But Motorola failed to freshen its product line or capitalize on its brand-name success and resorted to continually cutting the Razr's price to keep sales going.

"They had a huge advantage with the Razr but they didn't capitalize," Snyder said.

Zander has said that Motorola's struggles reflect a handful of factors, including its strategy of building market share by selling relatively inexpensive phones, instead of putting more emphasis on developing new high-end, highly profitable models.

He has also said that the company had fallen behind in the race to develop phones able to deliver high-speed data, particularly in the European market.

Investors gave Motorola's stock a slight bump before the news. Shares ended regular trading at US$17.95, up US$0.33, but fell US$0.30 in after-hours trading.

Motorola estimated that during the second quarter, it shipped 35 million to 36 million phones. Industry analysts had projected that it would sell 38 million to 40 million.

Motorola said it expected its mobile device division to have a larger operating loss in the second quarter than it did in the first quarter, but did not offer specific numbers.

It also said that it no longer believed that the division would turn a profit for the full year.

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