Motorola posts loss, investors concerned about cash

NEW YORK Thu Apr 30, 2009 1:01pm EDT

A Motorola logo is seen on their building at an industrial estate in Singapore April 3, 2008. REUTERS/Vivek Prakash

A Motorola logo is seen on their building at an industrial estate in Singapore April 3, 2008.

Credit: Reuters/Vivek Prakash

NEW YORK (Reuters) - Cell phone maker Motorola Inc MOT.N posted a smaller-than-expected quarterly loss thanks to cost cuts that helped offset a sharp drop in cellphone sales.

While it said losses would narrow in the current quarter, the cellphone maker's shares fell 9 percent after it also announced its cash position fell about $1 billion in the last three months.

"You don't want to see a company burning cash in such a tough credit market," said Charter Equity Research analyst Ed Snyder.

Motorola does not expect to have positive free cash flow again until the second half of the year.

Motorola shares were down 54 cents at $5.42 in midday trading on New York Stock Exchange. The stock had risen more than 90 percent by the close on Wednesday since early March when it traded at $3.10.

Motorola, which has struggled in recent years to stem sharp market share declines, posted a first quarter loss of $231 million, or 10 cents per share, compared with a loss of $194 million, or 9 cents per share in the same quarter a year ago.

Excluding some charges, its loss per share was 8 cents, better than the average analyst forecast for a loss of 11 cents, according to Reuters Estimates.

But revenue fell 28 percent to $5.37 billion, below the average Wall Street estimate of $5.55 billion.

"Amidst a very difficult economic environment, our results reflect disciplined execution and solid traction on our cost reduction efforts," Co-Chief Executive Greg Brown told analysts on a conference call.

PROMISES IMPROVEMENTS

Motorola expanded existing cost-cutting plans to help show improvements to its bottom line for the remainder of the year.

It forecast a second quarter loss per share from continuing operations in a range of 3 cents to 5 cents, roughly in line with average Wall Street expectations for a loss of 4 cents.

Motorola, whose biggest competitors are Nokia (NOK1V.HE) and Samsung Electronics Co Ltd (005930.KS), sold 14.7 million phones in the quarter, down from 27.4 million a year ago. Cellphone revenue fell 15 percent to $1.8 billion.

The mobile devices unit saw its loss widen to $509 million from $418 million in the year earlier quarter, but improve from a loss of $595 million in the fourth quarter.

Sanjay Jha, Co-CEO and head of the handset unit, said the segment's second quarter loss would narrow "significantly" from the first quarter. He sees shipments around the same level or slightly down from the first quarter as the company is focused on building a new phone line up for the fourth quarter.

"Directionally, I think we're making very good progress in turning this business around," he said in an interview with Reuters. "I'm pretty comfortable with the trajectory from here to the fourth quarter."

Motorola is banking on Google Inc's (GOOG.O) Android operating system for a new advanced phone range. Jha, who canceled other Motorola phones to focus on Android, said operators who had seen the devices seemed positive.

But these phones would likely face stiff competition from other smartphones, including Apple Inc's (AAPL.O) iPhone, Research In Motion Ltd's RIM.TO RIMM.O BlackBerry and Palm Inc's PALM.O Pre.

CASH DECLINE

Avian Securities analyst Matthew Thornton was disappointed with the performance elsewhere at Motorola. Its home and networks unit sells cable TV set-top boxes and network equipment for carriers, while its enterprise mobility unit sells to businesses and governments.

"Even though handsets might be seeing some light at the end of the tunnel, the other businesses are being affected by the macroeconomic conditions," he said. "Revenue was below expectations primarily due to the other businesses."

Brown said in an interview with Reuters that he expects improvements in those business for the rest of 2009.

"I think the first quarter is a low point for our home and networks and enterprise mobility businesses," he said.

Separately on Thursday, rival network equipment maker Ericsson (ERICb.ST) posted a weaker-than-expected profit as it was hurt by cutbacks in investments by wireless network operators.

Motorola said it was increasing its cost savings target for 2009 by $200 million to $1.7 billion, including $1.3 billion in savings from the cellphone unit.

Its cash fell to $6.1 billion in the first quarter from $7.4 billion at the end of last year because of a $700 million reduction in accounts receivable sales and about $200 million in restructuring-related payments. Motorola generated $201 million in cash in the fourth quarter of 2008.

The company, which sells accounts receivables to financial institutions, blamed the cash decline on troubled financial markets, which made receivable sales less economical, as well as its fall in revenue.

(Reporting by Sinead Carew; Editing by Derek Caney and Andre Grenon)