Motorola Solutions falls short of Wall Street expectations

Motorola Mobility Holdings Inc., in its first report since Motorola Inc. split into two companies, swung to profit in the fourth quarter, due largely to high-end mobile phone sales. But the cell phone maker fell short of Wall Street expectations. The stock dropped more than 12 percent.

The Libertyville-based consumer electronics company reported earnings attributable to common shareholders of $80 million, or 27 cents per share, in the quarter ended Dec. 31, compared with a loss of $204 million or 69 cents per share, in the year-ago period. Analysts polled by Yahoo Finance were expecting earnings per share of 36 cents.
Motorola Mobility took in $3.43 billion in revenue in the fourth quarter, up 21 percent from $2.82 billion in the year-earlier period.

Motorola Inc. split into two companies Jan. 4. The mobile phone and home equipment sectors became Motorola Mobility. The commercial segments, covering government and business contracts, became Motorola Solutions Inc. The earnings reported for the two companies are adjusted to reflect the separation of the business. (see sidebar)

 
Much of Motorola Mobility’s recent revenue growth came from the gains in the smartphone market. The company shipped 4.9 million smartphones compared with 2 million in the fourth quarter of 2009. Motorola Mobility divides its smartphones into three tiers. Its high-end smartphones run on Google Inc.’s Android operating system, the primary competitor to Apple Inc.’s iPhone. Sales of mid-range and low-end smartphones were slightly lower than expected, due largely to the popularity of Android phones in the United States.

Despite growing shipment volume, Motorola Mobility is projecting a loss of between $26 million and $62 million, or between 9 cents and 21 cents per share, in the first quarter of 2011. That compares with a consensus estimate of 18 cents per share from analysts surveyed by Bloomberg LP. In a conference call with analysts, CEO Sanjay Jha explained that flat demand in the home segment and the upcoming launch of the iPhone at Verizon Wireless contributed to the reduced expectations.

Douglas Reid, an analyst with Stifel, Nicolaus and Company Inc., is maintaining his “buy” recommendation, despite the impending release of the Verizon iPhone. “I think the company is well positioned to participate in growth in the Android smartphone market,” Reid said. He said that Motorola Mobility will more than make up for any loss due to iPhone competition with planned growth in China, Latin America and Europe.

Jha said that since the Verizon iPhone launch was announced, “We have seen a little slowdown in our sell-through of our devices. But, he countered, Verizon Wireless remains committed to offering choice to customers. Verizon also helped launch the Droid, Motorola’s Android-based phone series.

Also in the first quarter, Motorola Mobility will launch its first tablet PC. The Xoom, which debuted to critical acclaim at this year’s Consumer Electronics Show, will run the newest version of the Android software. The 3G version will ship to Verizon Wireless stores in late February, with a Wi-Fi-only tablet available in the second quarter.

 
“The long term opportunity to bring together connected home and mobile technologies is unique to Motorola Mobility,” said Reid. Because Motorola Mobility also sells set-top boxes for TVs, it is the only leading mobile device company that can connect consumers’ cell phones to their home electronics.

In addition, Reid places high value on having the first Android 3.0 device in its Xoom tablet.

The company plans to ship more than 20 million smartphones and tablets in 2011, and is expecting a slight rise in revenue in its mobile devices segment. The depressed housing market will continue to adversely affect demand for its home segment products, said Motorola Mobility President Dan Moloney in the conference call.

For the full year, Motorola Mobility posted a loss of $86 million, or 29 cents per share, a dramatic improvement from a loss of $1.34 billion, or $4.56 per share, in 2009.

Motorola stock closed at $30.51, down $4.32 a share, or 12.4 percent.