AP News, January 19th, 2007
Motorola Inc., the world's second-largest maker of cell phones, said Friday its fourth-quarter profits fell 48 percent despite record sales as operating results stumbled during the key holiday selling season.
The earnings drop came two weeks after the Schaumburg, Ill.-based company warned that both sales and profits would come in well below expectations amid evidence that discounting prices of its high-end phones had hurt its bottom line.
Net profit for the last three months of 2006 was $624 million, or 25 cents per share, down from $1.2 billion, or 46 cents per share, a year earlier.
Results included a net gain of 5 cents per share for various charges. Excluding those items, Motorola said earnings from continuing operations were 21 cents a share, or better than the 13 cents to 16 cents it forecast two weeks ago.
Analysts surveyed by Thomson Financial had lowered their consensus estimate to 25 cents per share following Motorola's Jan. 5 warning.
Revenue was $11.8 billion, up 17 percent from $10 billion a year ago and slightly above Wall Street's $11.7 billion estimate.
The company said it expects sales between $10.4 billion and $10.6 billion in the first quarter, in line with analysts' forecast of $10.5 billion.
CEO Ed Zander said a variety of factors had resulted in a disappointing quarter despite strong sales. He said Motorola is sticking with its strategy, which many analysts had said was in need of overhaul following the company's Jan. 5 profit warning.
Zander also dismissed suggestions that the trend-setting Razr phone, which turned around the company's fortunes two years ago, is running out of momentum.
"It's funny, I keep reading about Razrs being tired," he told analysts on a conference call. "We sold more Razrs in quarter four than in any quarter we ever had. We now have sold over 75 million Razrs worldwide."
Zander said newer products in the Razr family also are selling strongly, although not as well as some forecasts.
Asked why Razr prices had been cut if it is still in such strong demand, he said Razr makes money and there are ways to cut costs even further. He said he would provide more detail later Friday at a hastily scheduled analysts meeting in New York.
Edward Jones analyst Rick Franklin said that while results remained strong in Motorola's networks and enterprise and connected home segments, the company has to reduce costs in the handset business, where the operating margin sank to 4.4 percent from 11.6 percent in the third quarter.
"When you see this level of margins, there's something that needs fixing and it's not a three-month fix," he said.
The company, which is No. 2 in handsets behind Nokia Corp., said its world market share grew nearly 1 percent in the quarter to 23.3 percent.
Operating earnings from the mobile devices division, the company's largest business, fell 49 percent to $341 million despite a 19 percent increase in sales to $7.8 billion. The company shipped a record 65.7 million handsets in the quarter, up 47 percent from a year earlier.
"It definitely was a pricing issue, being very aggressive on pricing _ particularly in the emerging markets," said Morningstar analyst John Slack. "It may take a couple quarters for them to get back to where they want to be."
For the full year, net earnings were $3.67 billion, or $1.46 per share, down 20 percent from $4.58 billion, or $1.81 per share, in 2005. Sales rose 22 percent to $42.9 billion from $35.3 billion.
Shares in the company rose 24 cents to $18.95 in morning trading on the New York Stock Exchange. The stock began the session down 9 percent this year after a 9 percent decline in 2006.
___
On the Net:
http://www.motorola.com
