Motorola lowers expectations, sees comeback in 2H

The next few quarters will be “rocky,” Motorola Inc.’s chief financial officer told investors and analysts at Bank of America’s 2007 Technology Conference-a term the executive used three times until an analyst asked him to clarify it.
Did “rocky” mean no margins or negative margins? the unidentified analyst asked.
“We’re not in the position of being a not-for-profit organization,” said David Devonshire, Motorola’s CFO. “We’ve said that earnings, because of gross-margin compression in mobile devices in the fourth quarter, would not turn around in the first quarter. That’s why I refer to it as ‘rocky.'”
Devonshire’s cautionary remarks at the Bank of America conference in New York appear to be an exercise in lowering expectations by the Schaumburg, Ill.-based handset vendor. Devonshire is scheduled to deliver the keynote address at the Merrill Lynch Communications Forum this Tuesday as well.
Devonshire’s string of appearances come on the heels of the resignation of Ron Garriques, formerly head of the company’s mobile devices business. Garriques’ resignation came shortly after the company reported disturbingly low profits in the fourth quarter of 2006.
“Clearly we were pursuing market share, which is great as long as profitability follows,” Devonshire told his Bank of America audience. “We’re putting more focus on profit now, without giving up pursuit of market share.”
Devonshire said that Motorola expects to show improved results in the second half of the year with new handsets in high-tier price points with better margins, as well as by making cost reductions to lower-end phones for emerging markets, through improved marketing and by cutting 3,500 jobs.
He blamed his company’s lack of 3G products in the market last year-particularly in Europe, dominated in 3G sales by rival Nokia Corp.-to late chipset deliveries by Freescale Semiconductor, which has been a main component supplier since being spun off by Motorola in 2004. Motorola has since announced that it will also do 3G business with Qualcomm Inc. and Texas Instruments Inc., the two largest chipset suppliers in the business.
“So, we’re looking at a couple of rocky quarters,” Devonshire said. “This is not rocket science. We didn’t have a great fourth quarter. We admit it. We’re going to fix it.”
The CFO said that Motorola would not “give up on our investments in emerging markets,” adding that Motorola has gone from zero to 20 percent market share in India, but without giving a timeframe. (Nokia has 60 percent market share in India.) He said that in its first 90 days, the Motofone-a slim, low-cost handset designed for emerging markets-had sold well in India, Mexico, Colombia and other emerging markets.
At the other end of Motorola’s handset portfolio, Devonshire said that two GSM models of the Motorola Q were forthcoming, as well as an “upscale” handset based on the company’s so-called Scalpel platform.
Asked about management changes in the wake of Garriques’ departure, Devonshire said that “clearly there was a change that needed to be made.” He touted the abilities of the two executives-Ray Romans, senior vice president for global sales, and Terry Vega, senior vice president for global devices-who will act as interim co-heads of the mobile devices unit. But he also said, without elaborating, that the company would likely make changes in its approach to Asian markets.