Date:01/08/11

Motorola Mobility reports strong Q2 but weak Q3 view

Motorola Mobility Holdings Inc. reported a 28% rise in second-quarter revenue, thanks to strong tablet sales, but the device maker provided weak guidance for the current quarter because of delays in launching speedier 4G devices.Motorola's attempt to revive its fortunes through an aggressive embrace of mobile devices running on Google Inc.'s Android operating system hasn't been flawless. The Libertyville, Ill., company turned out some of the first real competitors to the Apple Inc. iPhone and iPad, but it since has been plagued by tepid reviews for its products and delays for devices that run on faster 4G networks.
In addition, activist investor Carl Icahn-long a thorn in Motorola's side--has started agitating for the company to explore a sale of its patent portfolio, a move he argues could raise billions of dollars but which some analysts say could hobble a company that relies on intellectual property to compete."I think the call from Ichan, in common with all shareholders, is to optimize and enhance shareholder value," Chief Executive Sanjay Jha said in an interview, skirting the issue."We're very focused on doing exactly that, making sure our share price is a true reflection of the value of our assets. We have a number of options that the board, myself and the management team regulary evaluate."
Jha added that Motorola has "very strong" patents, which have been rising in value because of the convergence of mobility, media and consumer products.As for the projected softness in the current period, Jha blamed the "modest delay" for its 4G devices, including its Bionic smartphone. He also said profitability in the tablet business shrunk more quickly than Motorola anticipated and that the company is seeing "sequential and seasonal" effects in its home business.
"The guidance for the third quarter is weak, but for the fourth quarter, when you back into numbers, you would see the guidance is robust," he said, noting the expected launches of multiple 4G devices. Jha declined to provide further details about the devices but said the company will have at least five 4G LTE devices in the market by year's end, including two new tablets. The devices were delayed as Motorola worked to develop its own 4G chips, rather than use wireless processors from other companies.
"Using our own chipsets has tradeoffs," Jha said."This has had an impact on third-quarter earnings but allows us to generate a lot more intellectual property. 4G IP will be quite important." Earlier this year, Motorola delayed its first 4G smartphone, the Droid Bionic, a hiccup for both it and Verizon Wireless, the company's largest and most important carrier partner. It also pushed back the release date for 4G capabilities for its Xoom tablet. Both devices will be available in September, Jha said.
For the third quarter, Motorola projects per-share earnings between break-even and 10 cents, below the 24 cents expected by analysts polled by Thomson Reuters. For the year, the company sees per-share earnings of 48 cents to 60 cents, below the analyst estimate of 71 cents. Chief Financial Officer Marc Rothman said during a conference call with analysts that third-quarter sales should be up "slightly" from the second quarter.Motorola shares, down 21% in the year to date through Thursday's close, fell 3.9% to $22.01 in after-hours trading.
In the second quarter, Motorola Mobility had a loss of $56 million, or 19 cents a share, compared with a prior-year profit of $80 million. Excluding stock-based compensation, write-downs and legal claims, per-share earnings were 9 cents, above the 6 cents expected on average by analysts.Revenue rose to $3.3 billion, surpassing Wall Street's projections for $3.12 billion.The company shipped a total of 11 million mobile devices during the second quarter.Third-quarter smartphone shipments should rise from the 4.4 million reported in the second quarter, Jha said. Tablets sales, meanwhile, should fall from the better-than-expected second-quarter figure of 440,000, he said, as customers wait for new 4G tablets to be launched in the fourth quarter.Rothman said Motorola expects smartphone and tablet shipments for the year to total 21 million to 23 million, compared with its previous projection for 20 million to 23 million. However, Motorola expects to ship only 1.3 million to 1.5 million tablets in 2011, down from its prior view for 1.5 million to 2 million.
Motorola's Xoom, while highly regarded as the first to run on an updated version of Android designed for tablets, was criticized for its price tag, which was slightly more than the Apple iPad 2. Jha said during a conference call Thursday that the company designed its new tablets with "the more aggressive cost point in mind."
"One of the advantages of being first is that you get the halo effect of being first, but you also have less time to cost optimize," he said. He added that Motorola has "made dramatic improvements" in its ability to deliver products faster, noting the long process for the Bionic was a disappointing exception. Motorola Mobility was created after it split with Motorola Solutions Inc. at the beginning of this year. Motorola Solutions, which makes public-safety radios and handheld scanners, earlier reported its second-quarter profit more than doubled on strong demand from enterprise and government customers. Motorola Solutions also authorized the initiation of a quarterly dividend and a stock-repurchase program.

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