Motorola Cuts 4th-Quarter Outlook on Cell Phone Results
Motorola the world's No. 2 maker of cell phones, lowered its forecast for quarterly results on Thursday due to a shortfall at its mobile devices unit.
The earnings warning made late on Thursday fell far below Wall Street expectations and could be the result of a fiercer price contest between Motorola and its larger rival, Nokia, as well as a greater reliance on emerging markets where cheaper handsets are sold, analysts said.
"This probably means they've been trying to fight Nokia on pricing. It probably means Nokia's going to see a similar trend -- high unit volumes and low phone pricing and margins," said Charter Equity Research analyst Ed Snyder.
Motorola said it now estimates fourth-quarter sales of $11.6 billion to $11.8 billion, shy of its prior view of $11.8 billion to $12.1 billion, despite investor hopes for more robust sales from its slim Razr phone and new models like the Krzr.
"They probably cut pricing on the Razr and the other phones didn't make up the difference," said Snyder.
Motorola also said it expects to report net income of 13 cents to 16 cents per share, below an internal forecast compiled at the start of the quarter. The forecast includes 10 cents per share in special charges, such as investment-related losses, stock based compensation costs and extraordinary tax expenses.
Analysts on average had forecast fourth-quarter revenue of $11.99 billion and earnings per share of 38 cents, before special items, according to Reuters Estimates.
The reduced forecast may also stem from demand in emerging markets like China and India but less strength in western Europe and the United States, Snyder said. He expected Motorola and Nokia shares would trade lower on Friday.
"We are very disappointed with our fourth-quarter financial performance, but we remain committed to the strategic direction and long-term financial targets we discussed at our annual analysts meeting," Chief Executive Ed Zander said in a statement.
Motorola estimated that unit sales in mobile devices rose 48% to 66 million units from a year ago, but said the results fell short of its expectations based on "an unfavorable mix" of regional and product-type sales. The company did not elaborate further.
Snyder had forecast mobile device sales of about 61 million units and said he believed Motorola had likely sold more phones at lower prices.
In October, Motorola posted third-quarter revenue that disappointed analysts' forecasts due to weaker-than-expected mobile phone sales, particularly in Europe. Nokia said at the time it had cut prices sharply to win market share, a move that squeezed its margins.
One month later, Motorola reported very strong cell phone demand "from a shipment perspective," particularly for its Krzr model, according to its cell phone unit chief Ron Garriques.
Motorola is due to report fourth-quarter earnings on Jan. 19, when it said it would discuss plans to improve operating profitability.