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Motorola profit beats estimates, powered by Android

Demand for its Droid phones, which run on the Google operating system, fuels a surge in net income.

July 30, 2010|Bloomberg News

Motorola Inc., the U.S. mobile-phone maker, reported second-quarter earnings that beat analysts' estimates, helped by demand for its new line of smart phones powered by Google Inc.'s Android operating system.

Profit, excluding some costs, was 9 cents a share, the company said Thursday. Analysts had projected 8 cents on average, according to a survey of estimates compiled by Bloomberg. Revenue for the quarter was $5.41 billion, compared with the $5.2 billion estimate.

Motorola's Droid X, the company's latest phone powered by the Android system, sold out at Verizon Wireless and Best Buy Co. stores after its debut this month. Such demand, following the success of the original Droid released late last year, bodes well for a recovery at Motorola, which suffered a 27% sales drop in 2009, said Mark McKechnie, an analyst at Gleacher & Co. Securities.

"The Droid X appears to be off to a good start, fueling confidence in Motorola's handset turnaround," said McKechnie, who is based in San Francisco.

Revenue for the quarter fell 1.5% from the year-earlier period. Net income climbed to $162 million, or 7 cents a share, from $26 million, or 1 cent, a year earlier.

"The old Droid is still selling surprisingly well, the Droid X is doing well and it looks like the Droid 2 launch is early," said MKM Partners analyst Tero Kuittinen who is based in Greenwich, Conn. "This is kind of like Motorola's moment in the sun."

But Motorola can't rely on Android alone to fuel growth in the mobile phone field.

"An operating system doesn't make a solid company," said Kenneth Dulaney, an analyst at Gartner Inc. "They have to innovate and stay ahead of very tough competitors. Samsung and HTC are very tough competitors. They've got good progress but unfortunately in this business it's 'What are you going to do tomorrow?' not 'What did you do yesterday?'"

Sanjay Jha, Motorola's co-chief executive who oversees the handset business, said on a conference call that he was "confident" the unit would turn a profit in the fourth quarter. That would pave the way for a planned spinoff of the phone unit and the division that makes cable TV set-top boxes, which the company said it expects in the first quarter.

Motorola said it shipped 2.7 million smart phones last quarter and 8.3 million handsets in total.

The Droid X is "off to a great start" and "exceeding our expectations," Jha said. He expects the company to launch "meaningfully more" than 20 smart phones this year.

Demand for the Droid X is outstripping supply, he said.

Jha, who joined Motorola in 2008 from chipmaker Qualcomm Inc., said a shortage of mobile phone chips is "our largest constraint."

He expects Motorola to ship 12 million to 14 million smart phones this year and said shipments would be a "modest" amount higher if not for supply constraints.

Motorola said overall profit for the third quarter, excluding certain items, will be 10 to 12 cents a share. That compares with the average estimate of 10 cents predicted by Bloomberg's survey of analysts.


Times staff writer Kristena Hansen contributed to this report.

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