Motorola ships 66M phones, but revenue and profits disappoint

It’s official-the fourth quarter was financially rough for Motorola Inc., as a handful of financial analysts had warned in mid-December. The disappointing results came despite a prodigious leap in the company’s unit sales over the year-ago quarter.
The company’s stock price tumbled in response to Motorola’s announcement of its reduced forecast for the quarter.
Now all eyes are on the other major handset vendors to see how they fared at the end of 2006, which had been expected by many in the industry to cap a year in which handset volumes reached close to a billion units.
Motorola’s results reflect that even big leaps in unit volume sales do not necessarily equate to revenue and profit growth in an industry segment with falling average selling prices and slimming margins. Analysts had suggested in the fourth quarter that mature markets were cooling and emerging markets-where average selling prices and margins are lowest-remained strong. Specifically, analysts had suggested that Motorola’s sales in the Americas were cooling while arch-rival Nokia Corp. might see a slowdown in sales in its own home market of Western Europe.
Nokia and Motorola together account for more than 55 percent of global sales of mobile phones, thus they are not only bellwethers of the industry but comprise the majority of the market as well.
In a preliminary forecast of its fourth quarter results, Motorola reported it would at best achieve the low end of its prior revenue estimate. The company said revenue for the final quarter of 2006 would likely fall in the range of $11.6 billion to $11.8 billion, versus guidance given at the beginning of the fourth quarter of $11.8 billion to $12.1 billion. The company reduced its earnings outlook to 13 cents to 16 cents per share, versus 39 cents per share forecast by a consensus of analysts polled previously by Thomson First Call.
Traders drove down the company’s stock by nearly eight percent in early trading, and the disappointing news appeared to also affect share prices for rivals Nokia, Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd.
The drop in Motorola’s estimates of its revenue and earnings came despite sales of handsets in the fourth quarter of about 66 million, a 48 percent jump over the year-ago quarter.
The company attributed its tempered outlook for fourth quarter results to its mobile devices division-which provides the bulk of the company’s revenue and profit-and said “an unfavorable geographical and product-tier mix” was responsible.
Motorola’s CEO Ed Zander said in a statement that he was “very disappointed” in the results but remained confident in Motorola’s long-term strategy and financial targets. Zander said he would outline plans for near-term operating profitability in a conference call on Jan. 19, following the release of the company’s official results.
CIBC World Markets analyst Ittai Kidron immediately downgraded his rating of Motorola from “sector outperform” to “sector perform,” and said that prior concerns over average selling prices and profit margins had materialized earlier than expected. Kidron’s own channel checks suggested that some supply chain mismanagement may also have played a role in the disappointing quarter. The analyst said there was “no quick fix” and he expected the company to show improvement in the second half of this year.
The Schaumburg, Ill.-based handset giant said its networks and enterprise division and connected home division would meet or exceed its internal projections, but those divisions produce a modest portion of the company’s revenue.