Motorola Had Massive Q4 Loss, Postpones Spinoff Again
Motorola lost $3.6 billion in Q4 on weaker sales, versus a year-earlier profit of $100 million. The manufacturer, looking toward a turnaround in 2010, suspended its dividend, announced the departure of Chief Financial Officer Paul Liska, and the second delay of its planned separation. On a conference call Tuesday, co-CEO Sanjay Jha warned of a weak Q1 and further weakness in handset sales.
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The company’s handset business continues to drop, sales plunging 51 percent year-over-year without new products. Jha warned that Motorola’s handset sales will fall faster than the market in 2009 as the company narrows its offering to midmarket and high-end phones. But he sees an improved portfolio in the first half of 2010, he said. Motorola will emphasize Google’s Android phones this year and Windows Mobile in 2010, he said. The company had dramatically cut costs in its mobile devices unit, to concentrate on a handful of devices. Jha stressed his intent to turn around the handset business and dismissed the idea of closing it. “We're completely committed to making the handset business work.”
Jha said he doesn’t expect break-even this year. The company still forecasts a 10 to 12 cents per share loss Q1. Beyond that, it expects operating results to improve, as the operating gross margin expands because of the business mix and the full benefit of cost-cutting, said acting CFO Ed Fitzpatrick. The company said it will suspend quarterly cash dividends, for financial flexibility. In addition to eliminating pay raises this year, it will no longer contribute to employee pension or 401(k) plans, but will continue to pay pensions. The company recently announced plans to cut 4,000 positions.
Motorola is still committed to spinning off its handset business, said Co-CEO Greg Brown. But the economy makes that unwise this year, he said. The company first postponed the spinoff in October. It didn’t say why Liska, appointed in February 2008, has left. Fitzpatrick, a senior vice president, will be acting CFO while the company searches for a replacement. Brown praised Liska’s work in preparing the handset business for a spin-off, but called the change appropriate for the new business environment.
Analysts questioned the prospect for growth in the handset business. The first quarter of 2009 will be the “absolute volume bottom in the handset industry,” said Global Crown Capital’s Tero Kuittinen. The North American handset market will decline faster than Europe’s Q1, he said. “Unfortunately, the bottom is not yet in sight,” countered Oppenheimer’s Ittai Kidron. “We see signs of the slowdown in units accelerating … as demand remains tepid throughout the year,” said Brian Modoff of Deutsche Bank. But improvement in Motorola’s home and networks division through the year is expected, S&P analyst James Moorman said.