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Motorola says it will post a loss

The cellphone maker cuts its first-quarter revenue forecast because of falling prices and a limited product lineup.

March 22, 2007|From Reuters

Motorola Inc. warned Wednesday that it would post a first-quarter loss, and it cut its revenue forecast to far below Wall Street expectations because of weak cellphone sales, driving shares down nearly 6%.

The No. 2 maker of mobile phones, which has disappointed investors for the last two quarters, also said it would accelerate its share buyback program, appearing to give in to demands by billionaire investor Carl Icahn.

Motorola also said Chief Financial Officer David Devonshire would retire April 1, and it appointed a new chief operating officer, Greg Brown. Thomas Meredith will be acting CFO.

The company cut its first-quarter revenue forecast to $9.2 billion to $9.3 billion from its January estimate of $10.4 billion to $10.6 billion. Analysts on average had expected $10.4 billion, according to Reuters Estimates.

Motorola forecast a per-share loss of 7 cents to 9 cents in the quarter, including 9 cents in special charges. Analysts had been expecting earnings of 17 cents a share excluding any items, according to Reuters Estimates.

"This is worse than I expected," said Edward Snyder, an analyst at Charter Equity Research. "They're losing a ton of money in phones. They need to release a set of new phones designed for lower prices; they need to design lower-priced phones that are designed to be profitable at a much lower price. And that's going to take about a year and a half."

Motorola cited a weaker-than-expected mobile phone division, a difficult pricing environment -- particularly for low-tier products -- and a limited portfolio of advanced phones.

"Clearly, the recovery will be substantially slower than we anticipated," said Brown, the newly appointed operating chief. The second quarter is expected "to be difficult as well."

Motorola has been struggling with a dive in phone prices as it tried to hold on to market share amid stiff competition in emerging markets and against industry leader Nokia. Its phone lineup has been criticized as stale.

Chief Executive Ed Zander said Motorola chose not to react to price cuts this quarter, which reduced volume.

He also told analysts in a conference call that he expected the mobile business to recover gradually in the second half and turn a profit for the year, but that full-year sales and profit would be substantially below the company's previous forecast.

John Slack, an equity analyst at Morningstar Inc., said the first-quarter revisions were disappointing, even though investor expectations were not high to begin with.

But, he added, "it's encouraging that Motorola is not chasing market share as much and instead appears to be focusing on getting back to profitability."

Besides challenges in its core business, Motorola has also faced demands from Icahn, who has taken a 2.5% stake in the company and was seeking a board seat to pressure management into making a bigger share repurchase.

Motorola said Wednesday that it would buy back $2 billion of shares on an accelerated basis and was increasing its current share buyback authorization program for the period ending July 2009 to $7.5 billion from $4.5 billion.

The company had bought back $1 billion of shares under its existing program.

Motorola shares fell to $17.69 in extended trading after closing at $18.74.

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