Motorola Inc. managed to both pleasantly surprise the market today and disappoint industry observers who are looking further down the road.
The company posted a meager profit, beat expectations on handset volumes and forecast it would end the year in the black.
Motorola also said its handset spin-off would not take place until late next year, presumably to see if it can resuscitate profitability in that division and gain the attention of a suitor with capital to invest. The company also has struggled to find an executive to lead a turnaround in the handset division, which has seen an exodus of talent since Motorola began its slide.
The Schaumburg, Ill.-based handset vendor may well find handset profitability elusive, however, as the passage of time works against the company’s ability to deliver innovative products to a fast-moving market, analysts said.
Yet the company’s guidance was clear: It will end this year as a profitable entity. Investors rewarded the news by sending Motorola’s stock up nearly 13% to $8.62 by midday, which is just above its 52-week low of $6.62.
One key metric that apparently also heartened investors: The company beat expectations to ship 28.1 million devices and, for now, stopped the slide in its global ranking.
Motorola holds the No. 3 position behind Nokia Corp. (41% share) and Samsung Electronics Co. Ltd. (15.4% share), but remains ahead of LG Electronics Co. Ltd.’s 9.3% share with its 9.5% share, according to data released today by Strategy Analytics. Sony Ericsson holds the No. 5 slot with 8.2% market share.
The 28.1 million devices shipped by Motorola in the second quarter reflected a nearly 3% sequential gain in shipments, but was down some 20% from the 35.5 million units shipped in the year-ago quarter.
The company’s overall performance earned it $8.1 billion in revenue, down from $8.7 billion in the year-ago quarter. Net earnings reached $4 million, considerably better than the $28 million loss it incurred in the year-ago quarter.
Revenue in the mobile devices division reached $3.3 billion, down 22% from the year-ago quarter. Earnings remained cached in terms of a loss – the company lost $346 million on its devices business in the second quarter, up from the $332 million lost in the year-ago quarter.
The company’s home and networks mobility unit and enterprise mobility divisions helped shore up the company’s financials. Home and networks reported revenue of $2.7 billion, up 7% over the year-ago quarter, with operating earnings of $245 million, up 28% over the year-ago quarter. Enterprise mobility brought in $2 billion in revenue, up 6% over the year-ago quarter, and operating earnings of $377 million, up 24%.
What’s new?
One major problem that continued to plague the company: the relative dearth of new products enticing to the consumer. The company said it launched 10 new devices globally in the first half of the year; Samsung, in contrast, said it expected to launch about 60 new products by the end of 2008.
“Revenue and profit were better than Wall Street expected,” said Daniel Longfield, analyst at Frost & Sullivan. “The downside is that Motorola said it was on pace to ship 100 million handsets this year, that’s a 33% drop from the 150 million handsets it shipped last year. That’s in a market that’s growing by 10% this year over last. Motorola is backpedaling while its competitors largely do well.”
“I don’t understand Motorola’s strategy for its handset spin-off right now,” Longfield added. “I see Motorola disappearing off the map right now.”
Longfield pointed to the prolonged timeframe the company has allowed itself to regain profitability, a goal he said would become increasingly elusive as the company struggled to bring innovative products to market in the short term. In the long term, the analyst said, Motorola lacks a plan to move beyond hardware to a software-and-services play being implemented by Nokia, Apple Inc. and others.
“These are baby steps in the direction of a recovery,” said Neil Mawston, analyst at Strategy Analytics. “These are tentative signs of recovery. We’ll need several quarters of data to see a trend. The good news, however, is that the company has slowed its fall.”
“Innovation remains a challenge at Motorola,” Mawston added. “Essentially, the company’s supply chain, from research and development to sales and marketing, remains chaotic. And the timeline for the handset spin-off is definitely not fast enough. There’s a lack of urgency.”
Mawston added that in Motorola’s former stronghold – its domestic market in North America – preliminary second-quarter data show that it has plummeted from 44% market share in the second quarter of 2006 to near parity with challengers Samsung and LG.
“My sense is that Motorola, Samsung and LG are pretty close in market share in the second quarter,” Mawston said.
