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Motorola’s Mobile Phone Share Drops Sharply

Posted on Monday, Mar 16th 2009

In the past week, Motorola has released two products: MC55 EDA enterprise smartphones based on Windows Mobile and Stature i9, an iDEN phone, with Sprint. According to a recent Gartner report, worldwide mobile phone sales declined 5% in the fourth quarter and Motorola slipped to the fifth position, its market share crumbling from 11.9% last year to 6.9% due to the lack of 3G products and touchscreen devices in its portfolio. Let’s take a closer look at the company’s recent performance. Earlier coverage is available here and here.

On February 3 Motorola reported Q4 and fiscal year 2008 results that were in line with analyst estimates despite declining mobile sales. For the full year 2008, revenue was down 18% to $30.1 billion and net loss was $1.84 per share. Q4 revenue was down 26% to $7.1 billion and net loss was $3.6 billion or $1.57 per share including a total net charge of $3.6 billion or $1.56 per share.

Motorola generated positive operating cash flow of $201 million during the quarter and $242 million in fiscal 2008. It ended the year with a total cash position of $7.4 billion. It has $530 million in debt due in November 2010. Overall gross margin in the quarter improved by 100 basis points over 2007, mainly due to a more favorable business mix with the broadband mobility businesses accounting for a larger percentage of overall sales.

Mobile Device sales were down 51% to $2.35 billion on shipment of 19.2 million handsets. Operating losses increased to $595 million from $388 million last year. For the full year 2008, sales were down 36% to $12.1 billion and operating losses were $2.2 billion, up from $1.2 billion in 2007. Overall ASP was $123, unchanged from the third quarter.

Home and Networks Mobility segment sales were down 5% to $2.6 billion in Q4, and for the full year sales were up 1% to $10.1 billion. Strong demand for HD, HD/DVR and IPTV devices saw shipments increase 38% to 4.7 million. Operating earnings increased to $257 million in the quarter and $918 million in 2008.

Enterprise Mobility Solutions segment sales were up 4% to $2.2 billion in Q4 and up 5% to $8.1 billion in 2008. Operating earnings increased to $466 million in the quarter and $1.5 billion in full year 2008.

Motorola has been successful in achieving its cost reduction targets. In fact, it exceeded its $1 billion target for 2008 by over $300 million. For 2009, it expects to reduce costs by a further $1.5 billion, with $1.2 billion of these savings coming from the Mobile Devices segment. It has suspended the quarterly dividend, which will save about $350 million annually. It also plans to reduce its global workforce in Mobile Devices by 25%. 

During the earnings call, Motorola also announced that it has fired its CFO, Paul Liska, for cause. Liska, who was with the company for less than a year, has sued the company for wrongful firing.

For the first quarter, Motorola expects a loss of $0.10 to $0.12 per share. It expects to have fewer product launches in 2009 compared to 2008, when it had 50. In Financial Crisis and the Top 5 Handset Stocks, we observed that Motorola needs to have more focus. In spite of its 50 launches last year, the company has yet to come up with an innovative touchscreen device. For 2009, Motorola is looking to focus on developing and delivering a compelling smartphone road map by bringing data-enabled functionality to mid- and high-tier devices, reducing its cost structure in Mobile Devices and continuing to leverage its strength in CDMA and iDEN and companion products.

The stock is currently trading around $4 with a market cap of about $8.5 billion. It hit a 52-week low of $2.98 on March 6.

Chart for Motorola Inc. (MOT)

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Motorola could acquire Palm. They certainly need the technology infusion. Ever since the transition to digital last decade, they have been slowly sliding into irrelevance. Motorola seems to be shedding expenses. If only they could produce some amazing Palm devices and get them out to their distribution network is likely their best chance at ever being a player in the industry again.

Realtosh Thursday, March 26, 2009 at 1:31 PM PT