Motorola Reports a Small Profit, Held Back by Phone Sales

Motorola's fourth-quarter sales fell 20 percent year-on-year, but the company still made out a small profit, unhampered by the exceptional charges that plunged it into loss a year ago, it reported Thursday. It expects to make a loss in the first quarter, however.

The company may be regretting its decision to hold on to its mobile devices business segment, which it had previously planned to sell: Device shipments fell 38 percent, and it was the only one of Motorola's major business segments to make an operating loss for the quarter, albeit a smaller one than a year earlier as the company's cost-cutting measures take effect. The decline in shipments will continue this year as the company expands its smartphone range and reduces investment in midrange feature phones, said Motorola Co-CEO Sanjay Jha, who is also CEO of the mobile devices business segment.

Total sales for the quarter slipped to US$5.7 billion from $7.1 billion a year earlier. The company reported net income of $142 million, or $0.06 per share, disappointing analysts who had expected $0.08 per share. A year earlier, the company reported a $3.7 billion net loss, including $1.8 billion in goodwill impairment and other charges, and $2.2 billion in deferred income tax.

For the full year, Motorola reported a net loss of $51 million on sales of $22 billion, down 27 percent from the $30 billion in sales it reported for 2008.

The mobile devices business segment made an operating loss of $132 million in the fourth quarter, an improvement on the year-earlier figure of $595 million. Sales for the segment totalled $1.8 billion, down 22 percent from the $2.35 billion a year earlier.

The launch of two smartphones running Google's Android software was not enough to turn the segment's fortunes around. It shipped just 12 million mobile devices, 2 million of them smartphones, during the quarter, down from 19.2 million a year earlier. Motorola estimates that gave it a 3.7 percent share of the mobile phone market, compared to 6.5 percent a year earlier. The company plans to launch four more Android smartphones in the first quarter, and 20 or more during the year, Jha said in a conference call with analysts. At least one of those phones will be a direct-to-consumer device developed for Google, he said.

Between the growth in smartphone sales and the decline in the overall number of devices the company expects to sell, smartphones will account for half of the company's mobile device revenue this year, Jha said. However, they will represent a much lower proportion of devices shipped, given the lower average selling price of feature phones and the low-end voice-centric phones that Motorola also manufactures.

Enterprise mobility solutions, including radios, mobile computers and wireless LAN devices, generated operating profit of $368 million, down from $466 million a year earlier, on sales of $2 billion, down 12 percent year on year.

However, conditions in this segment are improving, and Co-CEO Greg Brown expects sales to increase by between 1 percent and 6 percent this year, he said during the conference call.

The home and networks mobility segment saw the largest decline in sales for the quarter, down 24 percent year on year to $2 billion, while operating profit slipped to $91 million, from $257 million a year earlier. The segment includes digital entertainment devices, fiber-to-the-home optical networking equipment and smart meters for electrical utilities; Motorola has made a number of acquisitions to add new capabilities in video on demand (VOD) and digital rights management (DRM).

Demand is soft for home entertainment devices, and sales of networking equipment will also be lower this year, Brown said, warning analysts to expect sales in this business segment to decline by 10 percent or more this year.

For the first quarter of 2010, Motorola expects to make a net loss of between $0.01 and $0.03 per share. The figure includes non-cash amortization of intangibles and stock-based compensation expenses of around $0.04 per share, but excludes other exceptional charges.

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