U.S. News

Motorola Quarterly Profit Skids 48% Despite Record Sales

Motorola, Inc.

Motorola, the world's second-largest maker of cell phones, said its fourth-quarter profits fell 48% despite record sales as operating results stumbled during the key holiday selling season.

The earnings drop came two weeks after the Schaumburg, Ill.-based company warned that both sales and profits would come in well below expectations amid evidence that discounting prices of its high-end phones had hurt its bottom line.

Net profit for the last three months of 2006 was $624 million, or 25 cents a share, down from $1.2 billion, or 46 cents a share, a year earlier.

Results included 4 cents from discontinued operations and a net gain of 5 cents per share for various charges. Excluding those items, Motorola earned 26 cents a share -- a penny above the consensus estimate, according to Thomson Financial.

Analysts had lowered their consensus estimate to 25 cents per share following Motorola's Jan. 5 earnings warning.

Motorola Results

Revenue was $11.8 billion, up 17 percent from $10 billion a year ago and slightly above Wall Street's $11.7 billion estimate.

The company said it expects sales between $10.4 billion and $10.6 billion in the first quarter, in line with analysts' forecast of $10.5 billion. For all of 2007, Motorola predicts revenues between $46 billion and $49 billion.

During a conference call with analysts, Motorola CFO David Devonshire said 2007's earnings would be flat to slightly above 2006 profits of $1.13 a share.

CEO Ed Zander said a variety of factors had resulted in a disappointing quarter despite strong sales. He said Motorola is sticking with its strategy, which many analysts had said was in need of overhaul following the company's Jan. 5 profit warning.

Zander also dismissed suggestions that the trend-setting Razr phone, which turned around the company's fortunes two years ago, is running out of momentum.

"It's funny, I keep reading about Razrs being tired," he told analysts on a conference call. "We sold more Razrs in quarter four than in any quarter we ever had. We now have sold over 75 million Razrs worldwide."

Zander said newer products in the Razr family also are selling strongly, although not as well as some forecasts.

Asked why Razr prices had been cut if it is still in such strong demand, he said Razr makes money and there are ways to cut costs even further. He said he would provide more detail later Friday at a hastily scheduled analysts meeting in New York.

The company, which is No. 2 in handsets behind Nokia, said its world market share grew nearly 1% in the quarter to 23.3%.

Operating earnings from the mobile devices division, the company's largest business, fell 49% to $341 million despite a 19% increase in sales to $7.8 billion. The company shipped a record 65.7 million handsets in the quarter, up 47% from a year earlier.

For the full year, net earnings were $3.67 billion, or $1.46 per share, down 20% from $4.58 billion, or $1.81 per share, in 2005. Sales rose 22% to $42.9 billion from $35.3 billion.