Motorola posts sales decline, profit loss-but investors expected worse

The news from Motorola Inc., which reported first-quarter earnings early today, is fairly grim-and the short-term outlook is no better.
The Schaumburg, Ill.-based handset giant posted flat sales, an operating loss and lower shipments and market share than in the year-ago quarter. Despite the grim numbers, Motorola’s dire warnings in guidance given earlier this year had some analysts expecting worse. In the game of lowered expectations, the company’s results exceeded some forecasts.
The company said early today that revenue for the first quarter was $9.4 billion, down slightly from $9.6 billion in year-ago quarter. Net earnings at the company were in the negative column: a loss of $181 million, down from a $686 million profit in the year-ago quarter.
The lower-than-expected loss and higher-than-expected average selling prices for handsets apparently buoyed Motorola’s stock, which rose nearly 2 percent in the morning’s trading.
Mobile device sales, which typically account for around two-thirds of the company’s revenue, were $5.4 billion for the first quarter, down 15 percent from the year-ago quarter. Revenue was bolstered by the company’s two other divisions: Motorola posted a 42-percent increase in connected home sales and a 20-percent increase in networks and enterprise sales.
Excluding certain items, Motorola’s mobile devices segment incurred an operating loss of $231 million, down nearly a billion dollars from the year-ago quarter’s $701 million profit. The company said that acquisition costs, a legal settlement and reorganization charges impacted its earnings.
The company shipped 45.4 million handsets in the first three months of the year, down from 46.1 million units in the year-ago quarter. While shipments were strong in the company’s home base in the Americas, weakness in emerging markets and Europe contributed to weakness in sales, profits and shipments, the company said.
Motorola estimated that its global market share for the quarter was 17.5 percent, down from more than 20 percent in the year-ago quarter and 23 percent in the prior quarter. Motorola’s market share slippage is expected to benefit market leader Nokia Corp. and Samsung Electronics Co. Ltd., which trails Motorola as the No. 3 handset vendor worldwide.
Ed Zander, Motorola’s CEO and chairman, said the company expected to end 2007 in the black. Motorola continued an accelerated share-buyback program, recently stepped up in the face of criticism from Carl Icahn, the billionaire investor who is seeking a seat on the company’s board in the upcoming May 7 shareholder meeting. The company also said it is streamlining its product portfolio, proceeding with previously announced job cuts and introducing more Linux/Java-based products.
In related news, the company announced yesterday that it would pay the state of New Jersey, one of its key institutional investors, $190 million to settle a class-action lawsuit related to its dealings with Telsim, the Turkish network operator. Motorola loaned Telsim about $2.5 billion earlier in this decade to finance the operator’s network; Telsim subsequently defaulted on the loan. New Jersey sued as lead plaintiff in the matter, alleging that Motorola misled shareholders about the nature of its dealings with Telsim. Motorola expects to recover about $75 million of the settlement through insurance. The settlement was one of the charges that constrained Motorola’s earnings in the first quarter.