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Motorola warns of weak earnings

January 06, 2007|From the Associated Press

CHICAGO — Motorola Inc.'s two-year resurgence in the global cellphone market appeared to be in trouble Friday after the company warned of disappointing sales and earnings from the key holiday selling season.

Investors sent Motorola stock down sharply amid a consensus that the trendsetting Razr had lost its buzz in the marketplace and that Motorola's efforts to come up with a new killer product have so far not paid off, hindered by stiffening competition.

Motorola's announcement Thursday night of worse-than-anticipated fourth-quarter results made it two straight quarters that the company had fallen short of Wall Street expectations. It also threatened to end eight consecutive quarters of market-share gains for a company that, despite improving to a 22% share from 16% in 2004, remains far short of its goal of recapturing the lead it held in the 1990s from Finland's Nokia Corp.

Motorola's shares fell $1.61, or 7.83%, to $18.94 after sinking as low as $18 earlier in the session, matching their lowest price since July 2004.

Analysts said the news raised questions about Motorola's strategy, underscoring that recent market-share gains came largely by selling less profitable phones in emerging markets as the Razr's appeal fades.

"We believe that the issues are not a one-time hiccup but rather a reflection of a weak portfolio that struggles to replace a successful Razr model," Merrill Lynch analyst Tal Liani said.

The reliance of Schaumburg, Ill.-based Motorola on the ultra-slim Razr and its variations to carry it through another holiday season clearly had been misguided, some said.

"It's becoming a tired product that's heavily discounted, especially in the U.S. market," said Kenneth Leon, an analyst for Standard & Poor's Equity Services. He said other recently introduced products such as the Krzr and Slvr "don't appear to have the buzz or the sales traction that we expected."

Motorola isn't expected to give full details of its problems until it reports quarterly results on Jan. 19. In its announcement Thursday, it blamed only an "unfavorable geographical and product-tier mix of sales" for causing it to fall short of estimates despite solid mobile device sales of 66 million units, up 48% from a year earlier.

The company said it expected to earn 13 to 16 cents a share, including about 10 cents a share in charges, on sales of $11.6 billion to $11.8 billion. Those numbers are off the consensus forecasts of analysts surveyed by Thomson Financial for a profit of 39 cents a share on sales of $12 billion.

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