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Motorola Posts Damaging Fourth Quarter Losses

Posted on: Tuesday, 3 February 2009, 12:50 CST

The dwindling value of Motorola’s cell phone business was reaffirmed on Tuesday after the company posted a massive fourth-quarter loss.

The telecommunications equipment maker also suspended its dividend and announced the departure of its chief financial officer.

Motorola’s stock fell 11 percent in the fourth quarter, losing $3.6 billion, or $1.57 per share.

The Schaumburg, Ill.-based company lost 1 cent per share, excluding charges it took for goodwill impairment and an increase in its deferred tax reserves. Analysts expected Motorola to break even on that basis.

Motorola earned $100 million, or 5 cents per share in the same quarter of 2007. But its sales in the fourth quarter were $7.14 billion, down 26 percent from the year-ago period.

The company did not comment on the departure of CFO Paul Liska, who was appointed last February. While the company searches for a permanent replacement, senior vice president and corporate controller Edward J. Fitzpatrick will fill his shoes.

Liska had done a good job preparing the cell phone business for a spin-off, according to co-chief executive Greg Brown. However, the spin-off was postponed last year as the unit's sales declined further.

Brown said since the business environment had changed, Motorola felt the change was appropriate as well in the CFO position.

Motorola is actively looking to cut costs by $1.5 billion this year, mainly from the cell phone division . In January, the company announced 4,000 job cuts, in addition to the 3,000 it announced in October.

But Motorola forecasts a loss of 10 cents to 12 cents per share for the current quarter even with those efforts, excluding charges. Analysts had expected a loss of 6 cents per share.

Analyst Pablo Perez-Fernandez at Global Crown Capital predicted that the company, which generated cash in the latest quarter, would start burning through it later this year.

"Something is going on - the guidance is much worse than expected, which seems to imply that actions they're taking are not enough in the short term," he said.

He said the elimination of the dividend is a sign of the company's need to conserve cash. Motorola most recently paid a 5-cent quarterly dividend, for an annual yield of about 4.4 percent. It paid out $453 million in dividends last year.

Perez-Fernandez said dwindling cash reserves would surely tie Motorola’s hands down in its ability to restructure effectively.

"We need clear indications from Motorola what it is going to do to turn around the company."

The company sold 19.2 million cell phones worth $2.35 billion in the quarter—less than half the number of units it sold in the fourth quarter of 2007, but Motorola had warned of the decline in January.

As the economic malaise weakens consumer appetites, the cell phone unit is struggling with both a loss of market share and a decline in the overall market.

Sanjay Jha, head of the cell phone business, said Motorola will aim to produce hit smart phones, taking up the challenge of matching Apple’s iPhone and Research in Motion's BlackBerrys.

Jha said the company will focus on using Google's Android software, letting Microsoft's Windows Mobile take a back seat, at least until the new version of Windows arrives next year.

In March, Motorola announced that it would spin the cell phone business off into a separate publicly traded company sometime in the third quarter of this year. However, it postponed the spin-off in October and didn't set a new target date. There was no update on the spin-off as of Tuesday. Although they have not announced when it will be enacted, executives said they remained committed to the idea.

Motorola's non-cell phone units posted earnings increases, comprising two-thirds of the company’s overall sales.

Home and Networks Mobility, which makes cable-TV set-top boxes, modems and related gear, saw its operating earnings increase 34 percent to $257 million, on $2.6 billion in sales. Meanwhile, Enterprise Mobility, which makes police radios and other communications equipment for organizations, posted operating earnings of $466 million, up 3 percent, on sales of $2.2 billion.

Motorola lost $4.16 billion, or $1.84 per share for all of 2008. In the previous year it had lost $49 million, or 5 cents per share.

Motorola reported $30.1 billion in sales for 2008, down 18 percent from 2007.

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Source: redOrbit staff

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