April 18, 2007 / 11:30 AM / 13 years ago

Motorola posts quarterly loss, outlook disappoints

NEW YORK (Reuters) - Motorola Inc. MOT.N reported a quarterly loss on Wednesday and gave a forecast that raised doubts over when the world’s second-biggest mobile phone maker could turn around its business and return to profit.

A hostess holds a Motorola Z8 mobile phone at the 3GSM World Congress in Barcelona, February 15, 2007. Motorola Inc. reported a quarterly loss on Wednesday and gave a forecast that raised doubts over when the world's second-biggest mobile phone maker could turn around its business and return to profit. REUTERS/Albert Gea

Excluding special items, Motorola’s per-share earnings were a penny above Wall Street expectations, helping push its beaten-down shares up 2 percent. But analysts focused on a weak second-quarter outlook and market share losses to leader Nokia NOK1V.HE and other rivals.

Goldman Sachs analyst Brantley Thompson said a turnaround could be years away and cited a big risk Motorola would not meet its target for its phone unit to turn a profit this year.

“The ability to regain lost market share and to restore handsets to double-digit profitability is something that’s more of a three-year type of plan,” Thompson said.

Motorola, which has been hurt by price discounts for basic phones, stiff competition in emerging markets and criticism for a stale phone line-up, also faces a proxy battle with activist investor Carl Icahn, who is seeking a board seat.

Icahn said he has a stake valued at $1.2 billion in Motorola, or nearly 3 percent, and criticized the board for being passive. He said in a letter to investors that difficulties revealed on the earnings conference call reaffirmed his belief the board had “failed to timely steer management in the right direction.”

Board member and acting chief financial officer, Thomas Meredith, told Reuters that board support for Chief Executive Ed Zander was “unanimous.”

Motorola posted a first-quarter loss of $181 million, or 8 cents a share, compared with a year-earlier profit of $686 million, or 27 cents a share.

Revenue fell nearly 2 percent to $9.43 billion from $9.61 billion, but was ahead of the average analyst estimate of $9.25 billion, according to Reuters Estimates.

Before items, such as acquisition and legal costs, profit per share was 2 cents, a penny ahead of the average estimate.

Motorola shares, which had lost about a third of their value since mid-October, rose 37 cents to $18.24 on the New York Stock Exchange on investor relief the news was not worse.

Dan Genter, CEO of RNC Genter, a fund with $2.6 billion of assets under management including Motorola shares, said he was disappointed.

“The fact it was not a catastrophe is giving some support,” he said. “This has now become a ‘show me’ stock. Now you have to prove it to me you can do it ... There’s no evidence of a turnaround at this point.”

MARKET SHARE DROP

Motorola forecast a second-quarter profit of 2 cents to 3 cents a share, excluding reorganization charges and other items, with sales “essentially flat” compared with the first quarter.

Wall Street analysts, on average, expected second-quarter earnings of 8 cents per share before items and revenue of $9.97 billion, according to Reuters Estimates.

Analysts said Motorola’s market share fell to about 17 percent from 23.3 percent in the previous quarter, with losses to rivals such as Nokia, set to report on Thursday, and Samsung Electronics (005930.KS) and Sony Ericsson, a venture of Ericsson (ERICb.ST) and Sony Corp. (6758.T).

On a conference call, Zander called the results unacceptable and revealed a six-point plan to improve the mobile device business including new advanced phones later in the year. He said the phone unit, which has grown rapidly in the last few years on the back of the Razr phone, would now focus on profitability over market share growth.

“Sometimes when you grow that fast you get a little sloppy. We’ve got to get it back onto the basics that brought us here, which is profitable market share,” Zander told Reuters.

Motorola said it would give details of additional cost cuts by June. It has said it would cut 3,500 jobs to reduce costs.

Motorola repeated its expectation for a full-year profit but analysts said this was a tough target to meet as rivals would not sit still.

The company shipped 45.4 million handsets in the first quarter, down from 65.7 million in the fourth quarter.

Revenue for its mobile devices business was down 15 percent from the year-ago quarter at $5.4 billion and the unit posted an operating loss of $231 million, compared with a profit of $701 million in the year-ago quarter.

Additional reporting by Ritsuko Ando

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