Motorola Inc. (MOT) swung to a third-quarter profit ahead of the
debut of two key new smartphones aimed at turning around its
momentum.
The Schaumburg, Ill., company also made official veteran
executive Edward Fitzpatrick's role as chief financial officer,
which he filled on an interim basis since February. He has been
with Motorola since 2000.
The troubled telecommunications equipment maker has struggled
with crafting a desirable handset, but that appears to be changing
after it unveiled the Cliq for T-Mobile USA and the Droid for
Verizon Wireless. Neither device, however, is yet available, and
Wall Street has largely given the company a pass, preferring to
wait and use their success as a more accurate gauge of future
performance.
"Motorola will get a waiver from investors as long as it shows
directional improvements in its financial model," said RBC Capital
analyst Mark Sue.
For the period, Motorola posted a profit of $12 million, or 1
cent a share, versus a year-earlier loss of $397 million, or 18
cents, based largely on an aggressive series of cost cuts. The
results include 1 cent a share in charges related to environment
costs and its ongoing effort to separate the cellphone
business.
Revenue, meanwhile, fell 28% to $5.45 billion, largely due to
plunging sales of its handset business.
Analysts, on average, expected a break-even quarter, at the
mid-point of the company's forecast, as well as revenue of $5.54
billion.
Motorola shares rose 10.3% to $8.78 in Thursday morning trading.
They have more than doubled since hitting a 52-week low in
March.
Motorola expects full-year cost cuts to save the company $1.9
billion, $100 million than it previously predicted. Of that figure,
$1.4 billion came out of the handset division. It also reduced its
work force by 9,700 this year.
Motorola still plans to split the company, separating the
handset business from the networks and equipment unit, which
consists of areas such as network gear, public safety radios and
set-top boxes. The plan was delayed due to the tough economic and
credit environment and the desire to strengthen the embattled
cellphone business.
The wireless segment's sales fell 46% to $1.7 billion as the
company's position further eroded to 4.7% of the global market. In
the second quarter, its share was at 5.5%.
Investors are hopeful of a turnaround. Verizon Wireless, which
is jointly owned by Verizon Communications Inc. (VZ) and Vodafone
Group Plc (VOD), is already heavily promoting its Droid phone,
which was unveiled Wednesday.
"You won't be able to get away from [the marketing effort],"
co-Chief Executive Sanjay Jha told Dow Jones Newswires.
Deutsche Telekom AG's (DT) T-Mobile USA is also expected heavily
push the Cliq. In the meantime, the company has relied on
low-profile and basic handsets to fill the gap.
But the smart phone business continues to be tough for new
entrants or companies looking for a comeback. Palm Inc. (PALM),
which launched its heavily hyped Pre in June, continues to
struggle. Dominating the market is the Apple Inc. (AAPL) iPhone and
Research in Motion Ltd.'s (RIMM) Blackberry line.
Motorola is banking that its use of Google Inc.'s (GOOG) Android
software will give it an edge. It also doesn't hurt that it has the
support of the nation's largest carrier by subscriber. Jha said he
expects sequential improvement in fourth-quarter sales. He also
expects "significantly better" financial results next year for the
handset unit, which should break even in at least one of the
quarters.
In a further sign of confidence in Motorola's line-up, Jha told
Dow Jones Newswires that he has locked up the carrier deals for
smartphones for the first half of next year, and is already in
discussions for products in the second half.
"More Droids and more carrier backing will be required for
Motorola to perform next year," RBC Capital's Sue said.
"Cost-cutting will only get you to a point so we look for Motorola
to continue to sharpen its execution focus."
The home and networks business saw sales fall 27% to $2 billion.
The unit continues to be hurt by weaker demand for its set-top
boxes and a still sluggish housing market. Co-Chief Executive Greg
Brown said he sees flat to a slight decline in fourth-quarter sales
for the unit.
The enterprise mobility unit, meanwhile, posted a milder decline
of 17% to $1.7 billion. The unit over the past few years has
carried the company's results, but have felt the pressure as
governments, businesses and carriers have cut back on spending.
Local governments are starting to see funds from the stimulus
package, which should help boost fourth-quarter sales Brown
said.
Motorola expects overall fourth-quarter earnings from continuing
operations of 7 cents to 9 cents a share. The estimate excludes
charges related to its cost cuts. Wall Street is looking for
earnings of 6 cents a share for the period.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153;
roger.cheng@dowjones.com
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