Motorola joins chorus of 4Q warnings

Earlier this week, many telecom stocks landed on the lists of what investment and mutual fund managers were eyeing has hot buys for 2007, but after Carrier Access, Redback Networks and now Motorola issued fourth-quarter financial warnings, they may want to check those lists twice.

Motorola said late Thursday that it was adjusting its fourth-quarter sales forecast down from a range of $11.8 billion to $12.1 billion provided in fourth-quarter guidance last October to the range of $11.6 billion to $11.8 billion. The company also said fourth-quarter earnings were being reforecast in the range of 13 cents to 16 cents per share, which it said was below its previous internal forecasts.

The company said in a statement, “The shortfall in both sales and earnings occurred in the mobile devices segment and is attributed to an unfavorable geographical and product-tier mix of sales as compared to the company’s internal forecast. In the fourth quarter, Mobile Devices unit sales were approximately 66 million units, up 23 percent from the third quarter of 2006 and up 48 percent from the fourth quarter of 2005.” Motorola said quarterly results from its Networks & Enterprise and Connected Home business units are expected to be in line with previous projections.

“We are very disappointed with our fourth-quarter financial performance,” said Motorola Chairman and CEO Ed Zander in the statement, “but we remain committed to the strategic direction and long-term financial targets we discussed at our annual analysts meeting in July 2006. We will discuss plans to improve operating profitability on January 19 when we announce fourth-quarter earnings.”

Agencies such as Piper Jaffray and CIBC World Markets downgraded their ratings of Motorola’s stock. However, Lazard Capital Markets maintained its “hold” rating, but stated in a research note, “We believe that the benefit of a low valuation is offset by continued revenue and margin risk. We believe that the company's slight top-line and material bottom-line 4Q miss could carry into [first quarter] results as adequate channel inventory limits the possibility for a quick rebound. As a result, we have lowered our revenue and [earnings per share] estimates for 2007 somewhat.”