Moto down on handset losses, delays spinoff
Dumps Symbian, selects Android platform, due in late ’09
October 30 2008 - 1:17 pm ET | Phil Carson | RCR Wireless News
Traders sent Motorola's stock tumbling nearly 8% to $4.99, near its 52-week low of $4, in reaction to its third-quarter earnings.
Motorola Inc. lost $397 million on $7.5 billion in revenue across all its businesses in the third quarter and said today it would delay its plan to spinoff its handset division until sometime after 2009.
And in a move to cut costs, the company said it would cut 3,000 jobs, or about 5% of its workforce. About 2,000 of the job cuts will come from its mobile-devices business, which continues to see sales shrink.
Company-wide revenue was down about 15%; net earnings had been $60 million in the year-ago quarter.
Sales in the company’s flagship device business reached $3.1 billion, down 31% from the year-ago quarter. The handset business lost $840 million, more than three times the loss in the year-ago quarter.
Motorola shipped 25.4 million handsets in the quarter, down from 37.2 million in the year-ago quarter, according to Strategy Analytics. The company said that fourth-quarter unit shipments would be lower sequentially, despite the typical bump driven by holiday sales.
As a result, Motorola sank to fourth place among the top five global handset vendors for the quarter, below Nokia Corp. (118 million units), Samsung Electronics Co. Ltd. (52 million units) and Sony Ericsson Mobile Communications (25.7 million units), which barely edged out Motorola. LG Electronics Co. held fifth place (23 million units).
Traders sent Motorola’s stock tumbling nearly 8% to $4.99, near its 52-week low of $4, by midday in reaction to the news.
“The biggest shock here is the magnitude of revenue decline — down 15% and more than $400 million below consensus,” wrote analyst Tero Kuittinen at Global Crown Capital L.L.C. “This supports our suspicion that Motorola is fundamentally weaker than Wall Street believes.”
“Poor results ... underscored the need for drastic action by new co-CEO Sanjay Jha,” wrote TBRI analyst Ken Hyers. “Jha did not disappoint, announcing a sweeping restructuring package...”
Symbian, Freescale out
The company said in a conference call it would phase out use of the Symbian operating system and focus on Linux-based Android and Microsoft Corp.’s Windows Mobile for its smartphone efforts. Motorola also will cut off business with semiconductor supplier Freescale and use Qualcomm Inc. for low-cost 3G phones and Texas Instruments Inc. for higher-end devices.
Further, Motorola said it would cut $600 million in operating costs next year, beyond a similar cut to be completed this year. Analysts said further job cuts at the company likely were coming.
Jha also said that Motorola would winnow its offerings in the first half of next year, in line with its revised strategy. Thus, said Hyer, Motorola is likely to see more market share losses before bottoming out and resurrecting its fortunes.
Kuittinen agreed.
“There now is a clear chance that Motorola’s volumes will decline below 20 million units in the first quarter of 2009, which would mean substantial losses even with aggressive cost-cutting measures.”
Hyers said Motorola needed to focus its handset efforts on low-cost handsets for emerging markets and high-end smartphones.
The company took one-time charges in the third quarter relating to its consolidation of its silicon and software platforms and streamlining of its product portfolio.
A few bright spots
Motorola’s handset fall was softened somewhat by progress in its other divisions.
Motorola’s home and networks mobility business earned flat sales at $2.4 billion and operating earnings of $263 million, up 65% from the year-ago quarter. The company’s enterprise mobility business earned revenue of $2 billion, up 4% over the year-ago quarter, and operating earnings of $403 million, up 23% over the year-ago quarter.
The company said it expected to end the year in the black, excluding all-important charges relating to reorganizing the company and implementing further cost-cutting measures.
Article updated Oct. 30 to include details on job cuts.
October 31, 2008 05:59 am
"And I felt my body dwindling, melting, becoming nothing. My fears locked away and in their place came acceptance. All this vast majesty of creation, it had to mean something. And then I meant something, too. Yes, smaller than the smallest, I meant something, too. To God there is no zero. I still exist." The Incredible Shrinking Man
October 31, 2008 05:59 am
All you sea faring characters are onto something. Looks like Motorola Devices is going up the river into the heart of darkness to join Mr. Kurtz. I hear Kurtz is losing his mind over Motorola stock. Joe Conrad
October 31, 2008 05:59 am
Lads…t’is survival of the fittest. And Motorola Devices is not fit to survive, not even for lashings. Suggest you use your Motorola stock for chum, or just throw it overboard. Seas are getting rough. Squalls, hurricanes, and typhoons rage on all seven seas. Batten down and shorten sail. Fare thee well. The Sea-Wolf
October 31, 2008 05:59 am
Aye…Capt Bly is right. Bly…let the lashings continue until moral improves! Could ye send over some breadfruit? Me crew has got scurvy from holding Motorola stock. By the way, have ye seen the white whale? Capt Ahab.
October 31, 2008 05:59 am
What a sorry state of affairs at Motorola Devices. Sanjay has walked into a complete mess. But, he does not have to worry; he gets a $30 million automatic pay day Oct 2010, even if can't fix Motorola Devices. Shame on the incompetent Motorola board of directors who have presided over the Devices disaster! They took their eye off executive management. Carpet bagging Ed Zander walked off millions while driving Devices into the ground. And now, Sanjay, although capable and seemingly more sincere, will walk away with $30 million too. Given the terrible condition of Devices, I don’t blame Sanjay for securing a $30 million paycheck. In the meantime, Motorola shareholders will continue to suffer. Every Motorola board director should be ashamed at their complete and utter incompetence and consider resigning.
October 30, 2008 04:54 pm
Handset sales are going down because 1) the market has nearly reached saturation - who do you know that DOESN'T have a cellphone? and 2) getting a new or upgraded handset with your service requires a two-year contract, so people aren't getting a new phone every year the way they used to. Also, the new handsets are crammed with technology and there are very few just good cellphones out there. Motorola needs to offer a good solid handset with a medium sized screen and type and icons big enough for middle-aged folks to see without their readers. A camera would be nice, and text capabilities, but most non-hip regular uses don't want to pay for more than that.