Moto promises next-gen smartphones by Q4, analyst expects firm to cede entry-level handset biz: Mobile device business continues to drag on company, brand

Motorola Inc. today posted a $3.6 billion loss for the fourth quarter, down from $100 million earned in the year-ago quarter.
The news – and weaker than expected guidance on the current quarter – sent the ailing company’s stock tumbling more than 11% in trading, despite being roughly in-line with prior guidance.
“(We) believe that Motorola is destined to become almost exclusively a supplier of handsets to operators in the Americas, with sales to other regions making up a minor proportion of total sales,” said Ken Hyers at Technology Business Research Inc. “With this in mind, the company’s portfolio will be heavily weighted towards higher-margin mid- and high-tier handsets, and Motorola will accept the inevitable and cede the high-volume, low-margin, entry-level handset market to Nokia and Samsung.”
Motorola’s revenue reached $7.1 billion, down more than 25% from the year-ago quarter.
The company shipped 19.2 million handsets, less than half the 41 million units shipped in the year-ago quarter and down more than 25% sequentially.
Motorola estimated its global market share at 6.5%, less than one-third the nearly 22% it controlled just two years ago.
A new CFO
The Schaumburg, Ill.-based company suspended its cash dividend to investors and appointed interim CFO Edward Fitzpatrick, the company’s controller, and said CFO Paul Liska would depart the company, but executives declined to give reasons for the move. Liska was appointed just under a year ago.
The litany of financial difficulties extended to the beleaguered company’s full-year results as well. Motorola’s full year revenue reached $30.1 billion, down about 16% from the prior year. Net earnings for the full year were a $4.2 billion loss, more than eight times the $49 million loss it posted in 2007.
Looking to rekindle confidence in its handset operations, the company said it would cut costs further for a total of $1.2 billion in annual savings, to be realized this year. And it said its next-generation smartphones were on track to launch in the fourth quarter. In fact, the most revealing aspect of the earnings conference call on Tuesday was handset chief Sanjay Jha’s remarks on the company’s Android-related smartphone efforts.
Smartphones
If Motorola launches a Google Inc. Android-based smartphone in the fourth quarter it will be trailing HTC Corp. in that endeavor by a year and Samsung Electronics Co. Ltd. – which has replaced Motorola as Nokia Corp.’s main competitor – is scheduled to launch such a device in the second quarter of this year, Hyers pointed out. Motorola’s Microsoft Corp. Windows Mobile efforts will be aided by the release of Windows Mobile 7.0, but that won’t take place until next year.
“As a result, (we) believe Motorola is likely to continue to see market share decline in 2009 and early 2010,” Hyers wrote.
Jha was asked to address that point – how would Motorola differentiate its Android offerings as they launch after other efforts?
“The advantage that we bring to Android firstly is that we have worked in Linux, Java, which is the basis for Android for a number of years,” Jha said during the company’s conference call with analysts, according to a transcript of the call from SeekingAlpha. “We have a large team which is very familiar with Linux, Java and now Android. That gives us an advantage. Second thing is we bring a number of assets from our past work in Linux and Java in terms of modules which are today not part of the platform in Android, but allow us to differentiate using these modules in the marketplace.”
“Third thing that we would do is we will deliver some compelling applications and user experiences which are not core part of Android solutions,” Jha continued. “For instance, social networking is an important area that we have spent significant amount of resources in making sure that we can deliver a key differentiated and much more highly integrated social networking experience. There are a number of other areas that we are similarly working on to differentiate in this way.”
“Our mmartphone road map includes a variety of devices, many based on the Android operating system,” Jha said. “Android is a flexible operating environment and has attracted thousands of developers with it as we believe we can enable differentiated user experience. To that end, we are working on applications with best-in-class web browsing and unique experiences related to enhanced integration of mobility and social networking. We have shown a number of our devices to several customers The feedback we’re getting is that the portfolio will be very competitive. This puts us in a position for important product slots in the fourth quarter and first half of 2010.”
Jha added that between 30% and 40% of the division’s R&D investments is on smartphone development and the no-cost, no-license aspect of Android will allow the company to focus those R&D dollars on differentiating its offerings.
Other divisions
The company’s formidable task of turning around its handset division has placed greater importance on its two other divisions, home and networks mobility and enterprise mobility solutions. All three units are nearly on par for revenue and the non-handset businesses are in the black.
Home and networks mobility sales reached $2.6 billion in the fourth quarter, down 5% from the year-ago quarter. Operating earnings in the division were up about 30% from the year-ago quarter to $257 million.
Enterprise mobility solutions posted sales of $2.2 billion, up 4% over the year-ago quarter. Operating earnings ticked up slightly to $466 million.
North America and Latin America accounted for 51% and 26% of all the company’s fourth-quarter handset sales, according to Motorola. The Asia-Pacific region accounted for 16% and Europe, the Middle East and Africa was 7% of volume.
More losses expected
The company has crafted cost reductions of $1.5 billion for this year, of which $1.2 billion is coming out of the mobile devices budget. And 5,000 of 7,000 planned layoffs too are coming from mobile devices.
Motorola expects another loss in the current quarter, acting CFO Fitzpatrick said, but a fraction of that seen in the fourth quarter.
“Beyond the first quarter, we expect operating results to improve, as operating gross margin expands due to business mix and we realize the full benefit from the operating cost reduction actions,” Fitzpatrick said.
Jha warned of a greater-than-industry-average decline in unit volume shipments in the first quarter as well, a quarter in which industry volumes are expected to drop more sharply than is typical.
“We have made a significant number of changes in a short period of time,” Jha added. “I have been impressed with the team’s sense of urgency and unyielding desire to win.”
Had Moto executives looked at the cost of exiting the handset business, one analyst asked?
“We’re completely committed to making the handset business work,” Jha said.
Article update substantially Feb. 4 to include additional analysis and information from Motorola’s conference call.