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Weak Overseas Mobile Sales Sting Motorola

Motorola today sharply revised its first quarter guidance down today, and provided a revised perspective on the full year that wasn't too optimistic either due to much lower than anticipated sales at the company's Mobile Devices business. The company said it would take steps to improve the financial performance of the struggling division.

At the same time, the company announced the appointment of Greg Brown as president and chief operating officer and Thomas J. Meredith as acting chief financial officer. Brown will be responsible for the Mobile Devices unit, among others, and Meredith will fill in for CFO David Devonshire, who is retiring on April 1. The president and COO position has been open since January, 2005 following the resignation of Mike S. Zafirovski.

“Performance in our Mobile Devices business continues to be unacceptable, and we are committed to restoring its profitability,” said Edward J. Zander, chairman and chief executive officer of Motorola  in a statement. “After a further review following the leadership change in our Mobile Devices business, we now recognize that returning the business to acceptable performance will take more time and greater effort.”

The troubles in the Mobile Devices division is attributed to price competition in emerging markets, particularly India, Africa and South Asia. In some cases, Motorola chose not to get into a price war in those regions.

"We will not chase marketshare for the sake of marketshare at the expense of margin and profits. We chose not to match these price cuts, which in turn lowered our unit volumes," Zander told a conference call of reporters and analysts.

The company noted that the business continues to show strength in the Americas and North Asia. Europe is weak due to Motorola's limited 3G product portfolio.

Zander said he expects the second quarter will also be difficult for the mobile division, but it will be better by year-end. "Much has to be done to restore mobile device unit to where it can be. We expect it to recover in the second half of this year and be profitable by year-end."

Motorola now expects sales for the first quarter of 2007 to be in the range of $9.2 to $9.3 billion. A consensus estimates from Thomson Financial had put first quarter earnings at around $10.46 billion. The company is expected to report a loss in the range of $0.07 to $0.09 per share, thanks in part to a $0.09 per share charge.

Approximately $0.06 of that loss is from acquisition-related charges and in-process R&D expenses associated with the acquisitions of Symbol Technologies, Good Technology and Netopia. The remaining $0.03 is due to reorganization charges and a previously announced workforce reduction of approximately 3,500.

Motorola’s first quarter 2007 results are scheduled to be announced on April 18.

For the full year 2007, Motorola still expects to be profitable and have positive operating cash flow, but still expects overall sales, profitability and operating cash flow to be substantially below prior guidance.

Motorola reaffirmed previously stated guidance for the Networks & Enterprise and Connected Home Solutions businesses. For the Networks & Enterprise business, Motorola expects mid-teen annual revenue growth and double-digit operating margins. For the Connected Home Solutions business, Motorola expects sales growth to exceed market growth and operating earnings to increase as compared to full year 2006.

The company announced it has accelerated the repurchase of $2.0 billion of common stock under its existing $4.5 billion, 36-month share repurchase program. Motorola completed an earlier $4 billion stock buyback in July 2006. The $4.5 billion buyback will also be increased to $7.5 billion total, to be completed over the same time period.