Motorola: Heading From Bad to Worse

Motorola (MOT) appears to be out of the Palm (PALM) sweepstakes. Instead, Motorola will try to fix its rapidly deteriorating mobile business.

When shares were halted after market close Thursday, it appeared Motorola was poised to buy Palm. On Tuesday reports surfaced that Palm was looking to wrap up a deal before it reported earnings on Thursday. On Wednesday, word leaked to CNBC and others that Motorola was Palm's suitor.

However, Motorola had bad news to deliver.

The company said sales and earnings in the first quarter would be weaker than expected due to "lower than anticipated sales and operating earnings at the company's Mobile Devices business." Analysts were expecting bad news, but this warning may be a little worse than projected.

Specifically, Motorola said it would report a first quarter loss of 7 cents a share to 9 cents a share. Thomson Financial estimates called for earnings of 17 cents a share. Sales for the quarter are expected to be $9.2 billion to $9.3 billion. Wall Street estimate: $10.4 billion.

In a statement, Motorola said:

The revised guidance is attributable to lower than anticipated sales and operating earnings in the Mobile Devices business due to lower overall unit volumes, a difficult pricing environment, particularly for low-tier products and a limited 3G product portfolio. The Mobile Devices business expects to report an operating loss for the first quarter of 2007.

The Motorola warning would appear to take a Palm deal off the table. One struggling company usually doesn't acquire another one.

For the year, Motorola projected "overall sales, profitability and operating cash flow to be substantially below prior guidance." Motorola, however, says it will be profitable for the year. Wall Street estimates called for earnings of $1.05 a share on revenue of $46.1 billion.

With results like that you can expect the pressure on CEO Ed Zander to intensify dramatically. At least now we know why Zander bailed on its CTIA keynote.

So what's Motorola going to do to right the ship?

On the management front, Motorola named Greg Brown, president of Motorola's networks and enterprise business, president and chief operating officer. Thomas Meredith has been named acting CFO replacing David Devonshire, who is retiring as of April 1. Meredith is a general partner of Meritage Capital, L.P., an investment firm. He is also chief executive officer of MFI Capital. Previously, he was the managing director of Dell Ventures and CFO of Dell.

More interesting is what Motorola plans on the technology front. To boost the results of its mobile division Motorola said it will:

Deploy open standard Linux/Java software across mid- and high-tier devices to enhance the experiences available on handsets. (I wonder if that's a knock against Windows Mobile.)

Accelerate a more cost-competitive silicon strategy.

Shift the marketing approach to include experience as well as design as a product value proposition. (Translation: Motorola can't compete on costs.)

Introduce new feature-rich products that deliver compelling mobile experiences. (It remains to be seen how this goes with the Treo, Blackberry and iPhone out there.)

Simplify platform and product portfolio while transitioning out of legacy platforms. (In other words, run screaming from the lower-margin phones).

Improve product design processes to achieve competitive price points.

All of those aforementioned moves sound plausible. The big question: Will Zander be around long enough to see them through?

Comments

[carleast:]

What motorola lacks and always has lacked is a easy to use interface. It's simply terrrible. It's like using my old ZX Spectrum computer in the 1980's. Compare that to the interfaces of the other big four (Nokia, Sony Ericsson, and Samsung) and you are talking about light-years.

But the real problem isn't really to do with the interface. It's to do with the gap between US and European/Japanese ideas of what a mobile phone should be about. US consumers love style over substance and don't mind if the camera isn't very good or it doesn't have certain features. Motorola obviously listen to their US consumers more than their European and Japanese consumers because we love the features! We want multiple megapixel cameras, mp3 players and 3G. Motorola have always lagged behind in the technology stakes and they are paying for it now that the RAZR is long gone.

To be honest if it wasn't for the RAZR (which was bought only based on looks) Motorola would have been goners a lnog time ago. There is no way they can catch Sony Ericsson and Nokia now. Samsung can try but they will fall behind this year as their portfolio of phones looks thin.

This is also a reason why the iPhone will probably struggle to sell outside of the US. It may look amazing and have a great interface (yet to be seen) but it lacks on features. Nokia (N95) and Sony Ericsson (W880i and W950i) are well ahead of them on features and miles ahead in release date. And what's more they will cost people nothing on a contract where as the iPhone will cost about £400 over here. It's a no brainer.

2007 Mar 22 12:06 PM

[Tom B:]

Nokia and Eriksson really have nothing like the iPhone. And won't, for years. Your comparison is flawed.

2007 Mar 22 01:35 PM

[carleast:]

What do you mean Thomas. Give me examples? It's touch screen controls? LG already have one and the rest will be bringing out rivals by the end of the summer according to press releases.

So what else? The interface? Well that won't sell phones on it's own and we don't know if it's better than the rest yet anyway.

It's mp3 player? Well, mp3 players on phones is still in it's infancy and most people prefer a stand alone machine right now due to battery issues. But you can already put up to 2gb of flash in most phones and Sony is really doing well with it's Walkman branded phones. Basically by the time the iPhone comes out it won't have any advantage.

So what else? I'm struggling here. You two line statement was one of the best comments from someone who doesn't seem to have many facts ever!

It's looks? Well, I wouldn't pay $500 for looks alone. I'd rather save my money for a Hugo Boss suit and look cool that way and just get a Nokia or Sony Ericsson.

Size? It's bigger than the rest so no.

Weight? It's heavier than the rest so no

Camera? It's got a rubbish camera so no

3G capability? Not got any so no.

Ability to download tunes on the move? It can't so no.

Is there anything I've missed? Oh yes that's right. It's an Apple. Sod it, it's an Apple, let's all buy one.

2007 Mar 23 03:40 AM

[Tom B:]

I'll spell it out for you: the interface. As a busy person, I know I'd love to pick up a phone and be able to use it, including all the advanced features without a zillion key strokes. Doing feature-by-feature comparisons doesn't tell the whole story; its a matter of how well the features interact and integrate. Look at the iPod-- several SanDisk models have similar "features", but that doesn't mean you'd want to buy one.

"You two line statement was one of the best comments from someone who doesn't seem to have many facts ever!"

A little harsh there!

2007 Mar 23 08:48 AM

[carleast:]

Just to add something. That comment seems to be the American way. It looks good so buy it. That's the motto to Moto has been living with for years and now they're screwed. I worked for them on work experience while at Uni in their forecasting department. It was in 1999 to 2000 when they were forecasting ridiculous numbers. Even back then it was clear that all Motorola cared about was the looks of their phones.

To sell phones now a days you need style and substance. We'll see if the American manufacturers have what it takes.

2007 Mar 23 03:43 AM

[hottpotat0:]

Silly rabbits tricks are for kids-MOTO is not messing around! If you take a serious look into what is going on you will be amazed! And- maybe pissed if you do not get on the bus-go to wimaxforum.org and look @ their member roster, you will see the future unfold before your eyes-MOTO is partnered up with not just other companies they are partnered up with other countries building and rolling out their WIMAX networks! All other forms of convergence will be left redundant when WIMAX takes over! it is not a question of if-but when-will WIMAX take control-the other telecoms who do not or refuse to convert or participate in WIMAX will become backhaul outfits if they are not bought out in the process!!! The Cell phone business is small potatoes compared to what is about to happen /is happening –owning the hardware and structure of the global WIMAX network will guarantee revenue and lots of it for decades to come!!! that is until we learn telepathy or mental convergence or some other crazy way of communicating-my point is this- Ichan knows what is happening and wants in-so do I-so do a whole lot of others-you can choose to deny what is taking place but that will not make you wealthy fighting the coming wave-another tip is there are some crazy israeli’s making most of the hardware being used-56% globally is their amount of gear others are buying using and installing “alvarion” is their name-----look out world SURF IS UP!!!!!!!!!!!

2007 Mar 25 08:11 AM

[hottpotat0:]

MOTO is not messing around! If you take a serious look into what is going on you will be amazed! And- maybe pissed if you do not get on the bus-go to wimaxforum.org and look @ their member roster, you will see the future unfold before your eyes-MOTO is partnered up with not just other companies they are partnered up with other countries building and rolling out their WIMAX networks! All other forms of convergence will be left redundant when WIMAX takes over! it is not a question of if-but when-will WIMAX take control-the other telecoms who do not or refuse to convert or participate in WIMAX will become backhaul outfits if they are not bought out in the process!!! The Cell phone business is small potatoes compared to what is about to happen /is happening –owning the hardware and structure of the global WIMAX network will guarantee revenue and lots of it for decades to come!!! that is until we learn telepathy or mental convergence or some other crazy way of communicating-my point is this- Ichan knows what is happening and wants in-so do I-so do a whole lot of others-you can choose to deny what is taking place but that will not make you wealthy fighting the coming wave-another tip is there are some crazy israeli’s making most of the hardware being used-56% globally is their amount of gear others are buying using and installing “alvarion” is their name-----look out world SURF IS UP!!!!!!!!!!!

2007 Mar 25 08:12 AM

[hottpotat0:]

and one more thing MOTO is rolling out a huge network in PAKISTAN with a company called wateem-as well as having there hands in many other countries pockets

2007 Mar 25 08:19 AM

[carleast:]

Maybe I was harsh Thomas. But you still didn't really explain anything. I wasn't doing a feature by feature comparison simply because the iPhone lacks so many features that I'm not actually able to.

As you say it's how well everything integrates. What I find amazing is that based solely on it's reputation for making good mp3 players you and the rest of the US seem to think that they're going to nail the iPhone first time.

Motorola has been making phones for years and it's interface is still rubbish. Microsoft can't do it on a phone either. So why will Apple?

With the iPod all they need to do is play music. The iPhone will have to make calls, connect to the net, take pictures, play music, organise your life and much much more. But I suppose the general assumption now a days is that Apple can do anything!

Their repuation is based on the iPod and the iPod alone. They aren't really that successful with their computer division and their media boxes haven't done much. Plus now Apple tv is getting criticised to. So I'm just not getting how people can get so exceited about a product that they have never built before and that people have never used.

I'm sure Nokia are shaking in their boots!

2007 Mar 27 02:54 AM

[Tom B:]

"Their reputation is based on the iPod and the iPod alone. They aren't really that successful with their computer division and their media boxes haven't done much."

The iPod truly IS a great product. You call the computer business unsuccessful-- I challenge that. They have poor marketshare, but this is NOT based on failings of the product; it is due mostly to the fact that IBM backed the wrong house (MS-DOS) in the eighties. My confidence in the unreleased iPhone is based on my estimation of the technical challenges and my extreme confidence in Apple's competence based on long experience with a large number of Apple products. Further, I have listened to a couple of hands-on iPhone minireviews via the MacNotables Podcast where the reviewer had considerable experience with the competing products-- RAZT, TREO. I have a list of reviewers I find credible from past experience.

You sound like you have much experience in Telecom, and I respect that, but we are all dealing with different "inputs"-- that's the cool thing about the stock markets.


BTW-- the media boxes are new and just came out-- time will measure their success. Apple has "done" -- successfully-- monitors, printers, cameras, servers, and wireless routers over the years. I mean successfully in the sense that they have been able to make decent products.

2007 Mar 27 09:16 AM