Motorola’s Loss Widens as Phone Sales Drop

Motorola reported a widening loss on revenues that fell 28 percent in its first quarter.
Skip to next paragraph
The company said the quarter’s net loss grew to $231 million, or ten cents a share, on revenue of $5.37 billion.
A year ago in the same period, the company reported a net loss of $194 million, or 9 cents per share on revenue of $7.4 billion. Sales of Motorola’s mobile phones nearly fell by half to 14.7 million devices from 27.4 million a year ago. The handset division has struggled to regain the prominence it enjoyed earlier in the decade when its iconic Razr phone was a mass-market hit.
Overall, a consensus of Wall Street analysts compiled by Thomson Reuters had projected the company would lose 11 cents per share, excluding one-time charges. On that basis, the company reported a loss of 8 cents a share. The analysis projected Motorola would report sales of $5.6 billion for the quarter.
Meantime, a consensus of financial analysts compiled by StreetAccount had projected that Motorola would sell 14.1 million mobile handsets in the quarter and generate $1.67 billion in sales in the division. The analysts projected the company’s operating margin would be negative 23.7 percent in the handset business.
Following the earnings announcement, shares were down about 1.5 percent. The stock closed on Wednesday at $5.96.
Motorola’s stock has enjoyed a mini-rally since early March when it dipped to around $3.10. But in the last two years, the stock has closed as high as $10.50.
Industry analysts said the recession has not caused the struggles in Motorola’s handset business but certainly exacerbated them. Motorola’s share of the global handset market — around 25 percent in 2005 — now hovers around 7 percent.
At the beginning of 2006, handsets made up roughly two-thirds of Motorola’s overall revenue but now account for one-third, according to Per Lindberg, an analyst with MF Global Securities.
For some analysts, the question is not whether Motorola can revive the flagging fortunes of its handset business but whether it should continue to try to do so. For these skeptics, the erosion of Motorola’s mobile phone business — coupled with recessionary pressures — make for a nearly insurmountable situation.
The economic “slowdown has hit them particularly hard,” said Ed Snyder, an analyst with Charter Equity Research. “They’re stuck heavily in the handset death spiral.”
“If they have tens of billions of dollars they want to pour into this black hole, they might be able to save it,” he added. “Even then, there are no guarantees.”