NEW YORK (Reuters) - Motorola Inc said on Wednesday it will post an operating loss in the current quarter as its cell phone business is taking longer than expected to turn around, dashing Wall Street hopes for a profit and sending its shares down as much as 23 percent.
The company, whose weak cell phone product line caused it to lose customers to rivals like Nokia and Samsung Electronics in 2007, warned of further market share losses this quarter and backed off its forecast for its mobile devices division to return to profitability in 2008.
Motorola forecast a first-quarter loss per share from continuing operations of 5 cents to 7 cents, before any reorganization charges. Analysts had expected a profit of 9 cents per share, according to Reuters Estimates.
“The figures had us scratching our heads, checking the date to see if we were looking at an earnings release from 2002,” JPMorgan analyst Ehud Gelblum said in a note to clients.
Some analysts questioned if Motorola would stay intact after its outlook overshadowed quarterly results that were in line with expectations. Activist shareholder Carl Icahn has called for a break-up of the company. He was not immediately available for comment on Wednesday.
“They’re flirting with the handset death spiral. They’re losing share, which makes them smaller, which makes them less competitive on costs, which makes their phones less compelling, which loses more share,” said Charter Equity Research analyst Ed Snyder.
Asked about the potential for a company break-up, Motorola Chief Executive Greg Brown would only say he was focused on cutting costs, getting mobile devices back to profit and expanding the set-top box and enterprise mobility units.
Brown forecast a “significant drop” in first-quarter phone revenue and said unit sales would fall more than the decline of 10 percent to 15 percent typically seen in the first quarter.
Bear Stearns analyst Phil Cusick said this meant phone sales would fall to about 30 million in the first quarter, with Motorola’s market share falling to 10.4 percent. In the fourth quarter, Motorola shipped 40.9 million phones and had an estimated 12.4 percent market share. A year ago, it had a market share of about 23 percent.
BAD TIME FOR A BREAK-UP?
Some analysts said it would be a bad time to split Motorola as it would not get a good price due to uncertainty over its cell phone business.
The shares fell to as low as $9.43, their weakest level on the New York Stock Exchange since August 2003. Motorola has lost almost 62 percent of its market value since October 2006, when its financial performance began to worry investors.
“I do believe the company is trading significantly below the sum of its parts. Whether that would be a compelling reason for them to break up I don’t know,” said CreditSights analyst Ping Zhao, who said Wednesday’s market price would imply a negative valuation for the mobile unit.
Zhao said Motorola’s set-top box and network equipment unit could be worth about $8.25 billion and calculated a roughly $15 billion valuation for Motorola’s enterprise mobility unit.
Motorola has a market capitalization of about $23 billion based on its Wednesday closing price of $10.05 and its share count of 2.3 billion at the end of the fourth quarter.
“I don’t think the sum of the parts (argument) makes a lot of sense at these levels because you’ve got to turn around the business to get a good price for it,” said Piper Jaffray analyst Michael Walkley.
Executives said during an analyst call that the problem was Motorola-specific when asked about macroeconomic trends. The company said it lost market share in Europe, China and Latin America but kept its lead in North America.
“2008 is going to be a challenging year for us,” Brown told Reuters in an interview. “There’s no doubt there is a lot of heavy lifting and work to be done and we’re determined to go ahead and do it.”
Brown cited a plan to use chips from Qualcomm Inc in new high-speed wireless phones from late this year as a start. “That decision will allow us a more competitive and robust portfolio in 2009,” he said.
Motorola aims to save $500 million as soon as possible with cost cuts primarily in mobile devices, said Brown, who became CEO on January 1 when Ed Zander stepped down amid criticism on the lack of a popular successor to the once-lauded Razr phone.
Its fourth-quarter profit fell to $100 million, or 4 cents per share, from $623 million, or 25 cents a share, a year earlier. Revenue fell 18 percent to $9.65 billion.
Its mobile unit made an operating loss of $388 million, versus a profit of $341 million a year ago. Phone sales fell 38 percent to $4.8 billion.
Editing by Brian Moss/Lisa Von Ahn/Braden Reddall