June 23, 2008 / 2:44 PM / 11 years ago

Motorola falls on downgrades, market share worries

NEW YORK (Reuters) - Motorola Inc MOT.N shares slumped 7 percent on Monday to their lowest levels in five years after analysts downgraded the mobile-phone maker on fears it cannot staunch market share losses in North America.

A hostess holds the Motorola Q9 mobile at the 3GSM World Congress in Barcelona February 15, 2007. REUTERS/Albert Gea

Piper Jaffray analyst T. Michael Walkley cut his rating on Motorola shares to “sell” from “neutral,” and his price target to $7 from $9.75 on concerns about falling market share.

“Our checks indicated declining Motorola sell-through trends at all four major North American carriers,” he wrote.

The North America market represents nearly half of global unit sales for Motorola. The No. 3 U.S. mobile provider has already been under pressure for its failure to come up with a strong handset line-up since launching the Razr in late 2004.

Avian Securities analyst Matt Thornton also said on Monday that his research had led him to cut his rating on Motorola to “neutral” from “positive.”

The downgrades, which followed a similar move by broker RBC last week, dragged the shares down 56 cents to $7.38 by mid-afternoon trading.

That extended a five-day losing streak, which has led to a decline of 19 percent from a week earlier. Motorola shares have lost nearly 60 percent of their value over the past year.

Monday’s sell off also follows a flurry of product announcements by rivals.

In addition to Apple Inc’s (AAPL.O) new iPhone, Motorola faces competition from Sprint Nextel Corp (S.N) which last Wednesday priced Samsung Electronic’s (005930.KS) touch-screen Instinct phone at a competitive $130 after rebate. Sprint said it would spend more than $100 million to market the product.

The market showed little reaction to Monday’s announcement by Motorola of a new, camera-equipped phone called Motozine ZN5, which it launched together with Eastman Kodak Co EK.N.

Analysts also saw risk in Motorola’s announced plans to spin off its mobile devices business next year after more than a year of losses.

“Looking out further, we believe the continued deterioration in the handset business could threaten the viability of a spin-off of the handset segment, or at least push out the timeline,” Avian’s Thornton said.

“The significant losses in the handset business raise concerns both over the funding requirements of an independent handset business as well as credit ratings.”

In April, the company reported a wider operating loss in its mobile device business of $418 million and negative cash flow in its overall business of $343 million for the first quarter.

Piper Jaffray’s Walkley said Motorola’s plans to separate the division could lead to distractions and continued weakness in its product portfolio, resulting in accelerating share losses.

Sprint shares fell 1.1 percent to $7.82, while Apple shares slipped 30 cents to $174.95.

Reporting by Ritsuko Ando in New York and Bhaswati Mukhopadhyay in Bangalore; Editing by Maureen Bavdek

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