Motorola Beats Third-Quarter Forecasts

By Mike Hughlett, Chicago Tribune

Oct. 19–Buoyed by robust mobile phone sales, Motorola Inc. posted a strong third quarter Tuesday to beat forecasts.

And while the Razr phone wasn’t Motorola’s only hot item, the ultra slim model that’s helped remake the firm’s image continued to sell well beyond original expectations.

Schaumburg-based Motorola, which also makes communication equipment, recorded net profits of $1.75 billion or 69 cents per share, up from $479 million or 20 cents per share for 2004′s third quarter.

Not including one-time gains, Motorola posted per share profits of 30 cents for the third quarter. Analysts polled by Thomson Financial were expecting 28 cents on average.

Motorola’s third quarter sales of $9.42 billion topped analysts’ forecasts of $9.12 billion.

“It looks pretty solid,” said Piper Jaffray & Co. analyst Mike Walkley.

The earnings were released after the stock market closed Tuesday, but in after hours trading, its shares were up 58 cents or 2.88 percent. It closed Tuesday at $20.17, up 23 cents.

Motorola’s wireless phone unit, which made up 59 percent of the company’s third quarter sales, led the way.

The company shipped 38.7 million phones during the quarter, topping most estimates and were up 66 percent over the same time last year.

The division’s profit margins, though still a few percentage points below rivals, crept up a bit during the quarter, too.

Motorola sold 6.5 million Razrs during the quarter, again doubling quarterly sales volume of the phone, which now costs $199. When Motorola released the Razr last November, it was projecting sales of up to 750,000 per quarter.

Instead volume has doubled each quarter, setting records for a premium priced phone, analysts say.

“You very rarely see such a huge ramp up in volume,” said Ed Snyder, a stock analyst for Charter Equity Research. The Razr “is clearly a huge hit internationally.”

The phone has also helped Motorola’s image, which has led to a sales increase for all of its phones, analysts and company executives say.

The Razr comes in silver and black. A pink version is due out for the holiday season, Motorola CEO Edward Zander told analysts Tuesday.

“Many of you ask me what’s after the Razr?” Zander said. “More Razrs.”

Motorola also has other new higher-end models due this fall, including the Pebl, a rounded model, and the blade-like Slvr.

With those products, and Motorola’s expectations for continued market share and margin gains, the fourth quarter should be strong, Snyder said.

Zander did note, however, that the company’s Rokr phone, a joint venture with Apple Computer Inc., has met with “mixed results” since it was released last month. But he added “it’s just the beginning. We are excited about the product.”

The phone allows users to download up to 100 songs from Apple’s iTunes Web site.

Most other Motorola units also fared well during the third quarter.

CDW Corp. posted a healthy 12.2 percent increase in third-quarter net profit, beating Wall Street estimates.

Vernon Hills-based CDW, which sells computer hardware and software to businesses and governments, also said it will expand its downtown Chicago offices. While that’s good news for Chicago, Wall Street saw bad news: Increased expenses stemming from real estate moves will trim short-term profits.

CDW shares lost $2, or 3.52 percent, to $54.80 Tuesday on the Nasdaq stock market.

CDW reported third-quarter net income of $73.1 million, or 88 cents per diluted share, up from $65.2 million, or 76 cents a share, in 2004′s third quarter.

Analysts polled by Thomson Financial had expected per-share profit of 86 cents and revenue of $1.66 billion. CDW reported revenue of $1.67 billion.

“The quarter was good,” said Bruce Simpson, an analyst at William Blair & Co. in Chicago. “The [stock] market is doing ‘shoot first and ask questions later,’” he said.

In a conference call Tuesday, CDW said real estate-related expansion expenses will cost $25 million through 2006. In turn, CDW said its operating profit margin, which has been ranging from 6.5 to 7 percent, will drop to a range of 6.1 to 6.6 percent through the end of 2006.

The biggest chunk of CDW’s expansion expenses stem from a new distribution center in Las Vegas, which is scheduled to open later this year.

But CDW also plans an expansion in the West Loop, where it employs 950 in two sales offices.

The Tribune recently reported that CDW is negotiating to consolidate those offices into one at 120 S. Riverside Plaza, increasing its total space from 144,000 square feet to up to 240,000 square feet.

John Edwardson, CDW’s CEO, said the offices would be consolidated but declined to give further details. “Let’s put it this way: We plan to significantly grow the number of people we have in downtown Chicago in the next five years.”

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