Moto mobile device profits plunge in Q4

Driven by disappointing sales of the Razr 2, Motorola today reported fourth-quarter earnings of $100 million, down from $623 million in Q4 of last year. Sales for the Chicago-based communications company fell in the last three months to $9.65 billion from $11.79 billion in the same period a year earlier.

The dismal earnings were little surprise as Motorola comes off a year marked by executive departures and sub par handset performance. The highly successful Razr handset was credited with ramping up Motorola’s presence in the wireless market, but after executive vice president Ron Garriques failed to deliver a successor that could match the Razr’s popularity, Motorola saw its market share fall back to pre-Razr levels. Garriques soon left the company to be followed by CEO Ed Zander and CTO Padmasree Warrior.

In what was his first earnings report as Motorola CEO, new appointee Greg Brown recognized Motorola’s lackluster performance as demand has slowed for Motorola mobile devices and said a lot more work would be needed. Brown also warned that Q1 results for 2008 are not expected to meet analyst forecasts, either.

“We are focused on aggressively rationalizing the company's cost structure and working to get mobile devices back on track,” Brown said on the call. “The recovery in mobile devices will take longer than expected and there is a lot more work to be done. Our primary focus is on improving profitability and enhancing our product portfolio in this business.”

Concurrent with the executive changeup, at the close of 2007, Motorola was barely clinging to third place in the cell phone market following Samsung Electronics and long-time leader Nokia. Earnings for Q3 2007 saw a 94% decline in profit with the cellular phone division plummeting 36% to $4.5 billion in sales –- an operating loss totaling $138 million.

Now, still stuck in the wake of Apple selling more than 2.4 million iPhones, as compared to Motorola’s estimated 2 million Razr 2 handsets sold, the company still has sales improvements to be made. Further, the Razr 2 sold half as many as the wildly successful original model. This could be because the second edition retails for $300, while the very similar first edition is now available free with a contract.

Mark Sue, analyst for RBC Capital Markets, put the blame on the handset division for the sharp projected loss going forward, cutting unit sales forecasts from 40 million to 33 million. This projection comes after Motorola shipped 40.9 million handsets in Q4, up 10& from Q3, but still representing about a 40% decline from one year ago.

“The product portfolio consistency is still not there and Motorola is also lacking a competitive offering in the WCDMA segment where Nokia dominates,” Sue said in a research note. “Regionally, Motorola is losing share in Europe, China, and a little in Latin America. Demand for Motorola's new products has slowed and the lack of reordering means its back to the drawing board for Motorola.”

Going forward, Motorola said to expect video and music phones to come to market, including those previewed at the Consumer Electronics Show this year, the Moto Z10, optimized for recording and editing video, and the Rokr E8, Motorola’s next-generation music phone. In a separate announcement, Motorola also said it will expand its relationship with Qualcomm to design Qualcomm chipsets into certain UMTS 3G handsets beginning at the end of 2008 and in 2009.