Pressure mounts on Motorola as it loses share to LG

The Motorola MOTORIZR Z6tv is displayed during the Digital Experience event at the Consumer Electronics Show in Las Vegas, January 6, 2008.

NEW YORK (Reuters) - Motorola Inc's (MOT.N) expected drop to fourth place in the global phone market after LG Electronics Inc (066570.KS) could put at risk the U.S. company's plans to spin off its loss-making handset unit.

Analysts, on average, forecast Motorola will report a second quarter net loss of about $124 million on Thursday, about four times wider than its year-ago loss.

Nine analysts surveyed by Reuters estimated Motorola sold 26.6 million handsets in the quarter, behind LG's 27.7 million, Samsung Electronics Co Ltd's (005930.KS) 45.7 million and Nokia's (NOK1V.HE) 122 million.

If Motorola, which is not expected to have major phone launches until 2009, does not make any commitments for improvement, investors will likely lose hope for a spin-off of the handset business next year, some analysts said.

"The handset business needs to achieve profitability before it can be spun off," said Kaufman Bros. analyst Raimundo Archibold. "Who's going to want to own a company that's bleeding money ... We need to gain some sense the losses can be tempered."

Archibold said Motorola's share price of about $7.40 shows a lack of investor confidence in its ability to fix its handset unit any time soon. Motorola shares have lost about 72 percent of their value since October 2006, when its financials started deteriorating.

Several analysts said Motorola risks missing their already low estimates because the company has probably lost a lot of share in the North American market, where it has long been the leader.

They said it was not clear if it had already ceded the U.S. lead or would do so in coming quarters, but noted that LG and Samsung both had strong product sales, as had Apple Inc's (AAPL.O) iPhone. Nokia is also pushing to build up its U.S. business.

"I doubt we'll see any signs of stabilization yet. There really haven't been enough new handsets," said Morgan Keegan analyst Tavis McCourt, referring to Motorola.

Motorola said in April it expected second-quarter revenue from handsets to be flat with the first quarter, when it posted revenue of $3.3 billion for the unit on sales of about 27.4 million phones.

It forecast a second-quarter loss from continuing operations of 2 cents to 4 cents a share, before any charges related to cost-cutting efforts.

Analysts on average expect the company to report a loss of 3 cents a share, excluding items, on revenue of $7.7 billion, according to Reuters Estimates.

This would mean more than a year of losses for Motorola since it started to lose ground in late 2006 after failing to deliver a follow-up to the once-lauded Razr.

Aside from the prospect of more losses, investors also worry Motorola is having trouble recruiting a new leader for the mobile devices unit, a hire that analysts see as crucial for a recovery or a spin-off.

Chief Executive Greg Brown has run the unit since the previous head, Stu Reed, stepped down in February. The unit has had several management changes since the beginning of 2007.

"Job number one is to find a leader for that organization. I would have thought by now we'd have seen something," said Morgan, Keegan & Co analyst Tavis McCourt. "I think when they name somebody, it will certainly make investors feel better."

Many analysts also worry Motorola is losing key employees to rivals and have scant hopes the Chicago-based company will issue any positive updates on Thursday.

"I'm not expecting much comfort to be given to shareholders in terms of corporate actions or recruitment. We would expect them to give very cautious guidance for the third quarter," said Nomura analyst Richard Windsor.

(Editing by Andre Grenon)