Earnings: Motorola Handset Sales Down 15 Percent Year-On-Year


UPDATE: Motorola has released its first quarter earnings, and as expected they’re not too good… The company earned $5.412 billion from handset sales in the quarter, down 15 percent from the $6.403 billion it generated from handset sales in the first quarter of 2006. Motorola shipped 45.4 million handsets in the quarter, which it estimated to be 17.5 percent of the global handset market. The company expects the second quarter shipments to be flat compared to the first quarter. Excluding one-off items the handset segment incurred an operating loss of $231 million, compared to an operating earnings of $701 million a year ago. In the release Ed Zander, chairman and CEO of Motorola, said that “the performance in our Mobile Devices business in the first quarter is unacceptable and we are committed to restoring it to an appropriate level of profitability”. That strategy involves cost reductions with workplace reductions, streamlining the product portfolio (dropping six legacy products), rationalizing the pricing structure and distribution strategy and releasing more devices based on Linux and Java.
The drop in the handset business was somewhat offset by growth in Motorola’s other business segments (Networks and Enterprise up 20 percent, Connected Home Solutions up 42 percent) so net sales were $9.433 billion, down 2 percent year-on-year. The GAAP net loss from continuing operations of $0.09 per share, or a loss of $366 million, but seems to be paying a dividend of 5c per share. In the first quarter Motorola repurchased $3.1 billion of common stock under the $7.5 billion share repurchase program.

From the earnings call: Ed Zander made much of the four acquisitions Motorola completed during the quarter: Good, Symbol, Netopia and Tut. Those companies brought 1,500 granted patents to Motorola — the same number the company filed in 2006 (650 were granted). He also talked up Motorola’s WiMAX efforts: “As of today, we are participating in 25 trials globally and we’ve signed nine contracts. This quarter we announced a contract to deploy the first WiMAX network in Chile and we announced trials in Brazil and the Netherlands.”

Unsurprisingly there was a lot of focus in the call and in the questions about Motorola’s handset business, and what the company plans to do to get it back to the heady days of the Razr launch. Greg Brown, President and COO of Motorola, reiterated the company’s intention to “adopt a more disciplined approach to pricing and stop chasing market share for the sake of market share…So, it’s important that I reflect on the products, because I think it’s critical we maintain Motorola’s edge on design and product introduction. So, it is in that context that we began shipping eight new devices during the quarter, three Mass Market Devices and one Mid-Tier Device for GSM, three new CDMA designs and one new addition for UMTS.” The new additions are illustrative, as Zander later said that Motorola has great mid-range products but they are being squeezed by the high-end and low-end handsets. However, Zander claims that Motorola’s current chipset vendor can’t provide the silicon cheap enough to get out competively priced 3G phones (hence the search for new suppliers), and so “we are not going to have the 3G products here in 2007, we are not going to bunch out right now”. There’s a couple of 3G products coming out, but my impression from the call is that Motorola doesn’t expect great things of them this year.

Part of the drive to improve the handset business is to transition to three core operating systems, AJAR for the mass market and low tier, Linux/Java for mid and high-tier devices, and Microsoft/Good for smart phones, said Brown, following a trend starting in the industry. Someone pointed out that this focus has been talked about for a while, in fact since before the recent disappointing results. Zander replied: “I think you are right on. We’ve been talking about some of these platforms for several years actually. And one of the problems over there has been we just haven’t moved with the sense of urgency and priorities. And I think the lack of focus on the realities of 3G, while they were known, weren’t executed and that’s the reason we’ve made some of the changes over there…And the second thing is putting a stake in the ground around when we’re going to get Linux/Java out.”

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