Analyst: Motorola only stalling downward spiral

Surprise was the general sentiment amongst the investor community today after Motorola’s second quarter earnings. The handset manufacturer reported a small profit and sales of $8.1 billion in Q2. Although even the struggling handset division held on to its third place standing amongst handset vendors, not all are convinced that this is the start of turnaround for the handset manufacturer. The investor’s optimism centered on the numbers, but Daniel Longfield, industry analyst for Frost and Sullivan’s mobile and wireless group, was focused on the long-term outlook.

“Their revenue and the progress for the quarter were better than what most of the financial analysts had expected, but I’m more of a market and industry analyst and the thing I noticed was that they sold 160 million phones in 2007 and they’re on pace to sell about a hundred million phones in 2008,” Longfield said. “They are going to see a 40% decline in the units they ship. This is all happening while the market itself is probably going to increase by 10%. They are by far the worst performing of the larger handset companies right now.”

While mobile devices posted an operating loss of $346 million this quarter, that’s less than the $418 million lost in Q1. The company shipped 28.1 million cell phones, up from 27 million in the first quarter. As a result, despite expectations of a matrix switch up, Motorola held on to its number three ranking amongst handset vendors, narrowly squeezing out both LG and Samsung. Moto expects approximately 10% unit growth in 2008, according to CEO Greg Brown, on today’s second-quarter earnings call. The company was profitable in CDMA, iDEN, GSM and its 4G investments, he added, and he expects GSM to continue its strength in Q3.

Despite this, Longfield likens Motorola’s situation to that of Siemens, one of the top six vendors four years ago. The handset maker started to struggle against competition from Nokia and soon couldn’t stay profitable as price points of its devices declined. It finally spun off their handset division to BenQ in Taiwan. “Now BenQ isn’t even the top 10 of mobile devices,” he said. “So Siemens went from top five out of the top 10 in two years, and I really see the same thing happening for Motorola. By this time next year, they will be the fifth largest handset vendor.”