UPDATE: Motorola Swings To 3Q Profit; Selects Permanent CFO
October 29 2009 - 8:21AM
Dow Jones News
Motorola Inc. (MOT) swung to a third-quarter profit ahead of the
debut of two key new smartphones aimed at turning around its
momentum.
The Schaumburg, Ill., company also made official veteran
executive Edward Fitzpatrick's role as chief financial officer,
which he filled on an interim basis since February. He has been
with Motorola since 2000.
The troubled handset maker has struggled with crafting a
desirable handset, but that appears to be changing after it
unveiled the Cliq for T-Mobile USA and the Droid for Verizon
Wireless. Neither device, however, is yet available, and Wall
Street has largely given the company a pass, preferring to wait and
use their success as a more accurate gauge of future
performance.
"Motorola will get a waiver from investors as long as it shows
directional improvements in its financial model," said RBC Capital
analyst Mark Sue.
For the period, Motorola posted a profit of $12 million, or 1
cent a share, versus a year-earlier loss of $397 million, or 18
cents, based largely on an aggressive series of cost cuts. The
results include 1 cent a share in charges related to environment
costs and its ongoing effort to separate the cellphone
business.
Revenue, meanwhile, fell 28% to $5.45 billion, largely due to
plunging sales of its handset business.
Analysts, on average, expected a break-even quarter, at the
mid-point of the company's forecast, as well as revenue of $5.54
billion.
Motorola shares rose 5.3% to $8.38 in pre-market trading. They
have more than doubled since hitting a 52-week low in March.
Motorola still plans to split the company, separating the
handset business from the networks and equipment unit, which
consists of areas such as network gear, public safety radios and
set-top boxes. The plan was delayed due to the tough economic and
credit environment and the desire to strengthen the embattled
cellphone business.
The wireless segment's sales fell 46% to $1.7 billion as the
company's position further eroded to 4.7% of the global market. In
the second quarter, its share was at 5.5%.
Investors are hopeful of a turnaround. Verizon Wireless, which
is jointly owned by Verizon Communications Inc. (VZ) and Vodafone
Group Plc (VOD), is already heavily promoting its Droid phone,
which was unveiled Wednesday. Deutsche Telekom AG's (DT) T-Mobile
USA is also expected heavily push the Cliq. In the mean time, the
company has relied on low-profile and basic handsets to fill the
gap.
But the smart phone business continues to be tough for new
entrants or companies looking for a comeback. Palm Inc. (PALM),
which launched its heavily hyped Pre in June, continues to
struggle. Dominating the market is the Apple Inc. (AAPL) iPhone and
Research in Motion Ltd.'s (RIMM) Blackberry line.
Motorola is banking that its use of Google Inc.'s (GOOG) Android
software will give it an edge. It also doesn't hurt that it has the
support of the nation's largest carrier by subscriber.
"More Droids and more carrier backing will be required for
Motorola to perform next year," Sue said. "Cost cutting will only
get you to a point so we look for Motorola to continue to sharpen
its execution focus."
The home and networks business saw sales fall 27% to $2
billion.
The enterprise mobility unit posted a milder decline of 17% to
$1.7 billion. The unit over the past few years has carried the
company's results, but have felt the pressure as governments,
businesses and carriers have cut back on spending.
Motorola expects fourth-quarter earnings from continuing
operations of 7 cents to 9 cents a share. The estimate excludes
charges related to its cost cuts. Wall Street is looking for
earnings of 6 cents a share for the period.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153;
roger.cheng@dowjones.com
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