SCHAUMBURG, Ill.—Motorola Inc. reported robust sales of its wireless handsets in the first quarter and a nearly 5-percent gain in global market share over the year-ago quarter to 21 percent. The company’s positive handset news confirmed that it had achieved its stated ambition to close the market-share gap with rival and market leader Nokia Corp.
Motorola’s good news was overshadowed by a drop in overall earnings, caused in part by lackluster results in the company’s network business and, perhaps ironically, dogged by the robust handset sales led by the company’s mega-hit Razr phone. Despite record-setting first-quarter sales in handsets, the company reported a decrease in net earnings to $686 million from $692 million in the year-ago quarter. Asked what Motorola’s follow-up act to the Razr would be, Chief Executive Officer Ed Zander said, “Razr Part II,” though it wasn’t immediately clear whether he meant tweaks to the Razr, or referred to the Razr as the slim phone design that would govern succeeding models such as the just-released Slvr model.
Industry analysts are concerned that despite the Razr’s long-lived sales two years after its release, the handsets’ sales are likely to wane, placing pressure on Motorola to produce another mega-hit handset model. Milking the Razr’s popularity by tweaking its features or colors to continue its sales success may make sense in the short-term, but the strategy risks lowering the company’s profit margins as the handset is increasingly subsidized by carriers in the United States and Motorola pursues an increase in unit volume in ultra low-cost handsets with slim margins in emerging markets.
The strategy could succeed in capturing or maintaining market share, while hurting profits. The lack of a successor to the Razr risks squandering Motorola’s momentum as a market leader in stylish design, according to a number of analysts.
Motorola attributed its overall sluggish quarterly results to its infrastructure division, prompting speculation that Motorola would seek to sell that division—particularly in light of Zander’s statement that his company is focusing on its core competencies. Motorola just announced that it would shed its automotive electronics business to Continental AG for about $1 billion in cash, but Zander declined to speculate on the future of the infrastructure division. Major infrastructure providers Alcatel Inc. and Lucent Technologies Inc. have recently agreed to merge, putting pressure on the remaining players to increase their scale through mergers and acquisitions, or leave the field.
The news of Motorola’s overall drop in earnings sent the company’s stock price down 5 percent following the company’s earnings report.
Zander attempted to put some gloss on his company’s performance, crowing that Motorola is now identified as a “cool, innovative company” on the strength of the Razr, which has outsold any other handset in the history of the industry and continues strong sales with various colors, propelling the company’s results. Motorola shipped 46.1 million handsets in the first quarter, a whopping 61-percent increase over the year-ago quarter and a slight, 3-percent increase over the fourth quarter, producing operating earnings of $702 million, up from $440 million in the year-ago quarter.
The level of handset shipments reflected that Motorola had increased its global market share by 4.8 percent over the year-ago quarter and 2 percent over the fourth quarter, cutting the gap with Nokia, which announces its first-quarter results tomorrow, and putting greater distance between the two market leaders and the other first-tier handset vendors, Samsung Electronics Co. Ltd., LG Electronics Co. Ltd. and Sony Ericsson.
