Motorola Issues Earnings Warning on Weakness in Europe, Asia
Motorola reduced quarterly guidance on Wednesday evening, buttressing activist investors' recent demands for a management shakeup, only hours after rumors of a change at the top sent the shares higher.
Attributing the expected shortfall to lower mobile device shipments in Europe and Asia, the cell phone maker said in a release that it now expects a second-quarter loss of 2 to 4 cents a share, on a GAAP basis, compared with previous expectations for a profit of 3 to 4 cents a share.
Motorola also said it expects second-quarter sales in a range of $8.6 billion to $8.7 billion, below previous guidance of $9.4 billion.
The company also said it no longer expects its mobile device division to turn a profit in fiscal 2007. Motorola will formally report quarterly results on July 19.
Shares fell 1.8% in after-hours trading Wednesday.
In a separate announcement, Motorola named Stu Reed, a supply chain executive, president of its mobile devices unit.
Bad Follows the Good for Motorola Shares
Motorola shares rose almost 3% during regular trading hours Wednesday on speculation that Chief Executive Ed Zander could be about to resign, amid a new campaign by an activist investor to oust the executive.
Zander, whose management of the No. 2 mobile phone maker came under heavy criticism from billionaire investor Carl Icahn earlier this year, now faces fresh pressure from activist shareholder Eric Jackson, who published a statement online entitled "Motorola Plan B" this week.
Jackson became the figurehead for widespread shareholder dissatisfaction at Yahoo after standing up at the company's annual meeting in June and asking then-CEO Terry Semel to apologize to shareholders. A week later, Semel was replaced.
"There are rumors Zander may be resigning," said Charter Equity Research analyst Ed Snyder. "This would increase confidence that a serious restructuring is afoot."
A Motorola representative declined to comment.
Motorola, whose shares have lost about a third of their value since mid-October on disappointing results, posted a first-quarter loss due to weak handset sales caused by a lack of advanced phones and tough price competition.
Jackson noted that Motorola shares have gained 13.5% since Zander was named CEO in 2004, compared with gains of 37.8% for rival Nokia .
"His past performance and the currently articulated strategy for a turnaround are neither sufficient or acceptable," said Jackson.
Jackson said in an email that he is in contact with large institutional shareholders and already has support from 18 individual investors with a collective stake worth just under $1 million in Motorola shares.
Based on Wednesday's share price and a share count of 2.3 billion, Motorola's market capitalization is $41 billion.
Earlier this year, Zander withstood pressure from Icahn, who failed to win enough shareholder votes for a board seat.
Speculation about a Motorola management change also circulated in the options markets. Paul Foster, options strategist at Web information site theflyonthewall.com in Chicago, cited "unconfirmed chatter" that Zander would step down.
Foster said the company's second-quarter earnings report, expected in coming weeks, could be another factor.
According to market research firm Track Data, 50,293 calls compared to 13,123 puts changed hands in Motorola, far outpacing its normal volume of 24,621 contracts during the first half of the session.
Investors often use equity calls in hopes of profiting from a share price rise, and puts to speculate on potential stock weakness.