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Motorola's Downward Spiral Continues

Motorola earnings
The 2008 holidays were more humbug than happy for Motorola.

Sales plummeted 26 percent to $7.1 billion during fourth quarter, leading to a net loss of $3.6 billion, or $1.57 per share, and pushing the beleaguered handset maker from fourth to fifth place in the industry.

That's a dramatic shift from the situation a year earlier, when Motorola (NYSE: MOT) reported a quarterly profit of $100 million, or $0.04 per share.

The news had been worse than analysts expected: Wall Street had been looking for Motorola to break even before one-time charges on $7.15 billion in revenue, according to Thomson Reuters. Now, Motorola executives told investors during this morning's earnings call that a break-even point won't happen until 2010 or 2011 at the earliest, as the company now expects a loss of $0.10 to $0.12 per share for the first quarter of 2009.

The dismal fourth quarter capped a painful 2008 for Motorola, which reported $30.1 billion in sales for the full year -- down 18 percent from 2007 -- and a full-year loss of $4.16 billion, or $1.84 per share. A year earlier, the company had reported a net loss of only $49 million, or $0.02 per share.

The report signals that Motorola continues its backward slide as it struggles to revamp its business and compete successfully against high-flying competitors like Samsung, LG and Apple, all of which increased their market share over the past 12 months.

Motorola had held an 8 percent market share as of November, and was in fourth place behind Nokia, Samsung and Sony Ericsson, according to a Gartner report. Motorola estimated today that its current share of the global handset market had declined to 6.5 percent.

A large portion of Motorola's woes stemmed from a steep decline in its core business. During the quarter, Motorola sold 19.2 million cell phones, with sales of $2.35 billion. However, those revenues were down 51 percent compared to the same quarter in 2007, and 30 percent below its third-quarter 2008 sales.

Strength in other businesses

The lone bright spots were within in the company's Home and Networks Mobility and Enterprise Mobility divisions.

Home and Networks Mobility earnings were $257 million, a 34 percent increase compared to the fourth quarter of 2007. Sales, however, dropped 5 percent to $2.6 billion for the quarter, compared to the same period a year earlier. For the full year, sales totaled $10.1 billion, a 1 percent increase compared to 2007, with full-year earnings of $918 million, up 29 percent from 2007.

Sales for Enterprise Mobility came to $2.2 billion, with earnings of $466 million, a 3 percent increase compared to the fourth-quarter of 2007. For all of 2008, sales reached $8.1 billion, a 5 percent increase over 2007, and earnings of $1.5 billion increased as well, up 25 percent from 2007.

Changes at the top and cost-cutting ahead

Yet those successes couldn't help Motorola offset its deep losses in consumer mobility. To better stem the tide of red ink, executives outlined a new round of money-saving measures, including suspending the company's quarterly cash dividend. They also said the company plans further cost-reduction actions that will provide savings of $1.5 billion in 2009. Motorola previously announced a slew of job cuts in December.

[cob:Special_Report]Prior to the earnings call, Motorola also announced that CFO Paul Liska had stepped down, and would be replaced by corporate controller Edward J. Fitzpatrick. The company also said it has initiated a job search for a permanent replacement for Liska, who had had been hired shortly after Co-CEO Greg Brown stepped in a year ago.

Two mobile devices executives, Yvonne Verse and Tracey Koziol, have also reportedly left the company, according to a Wall Street Journal report this morning. Motorola did not respond to e-mail inquiries by press time.

Motorola also said it's focusing on several key innovations designed to help it retake some of its lost market share.

For one thing, the company expects to produce low- and mid-tier smartphones based on the open source Android platform by the end of the year. Co-CEO Sanjay Jha also said Motorola is working to develop devices with social networking and "best-of-breed" Web browsing user experiences. He said 30 to 40 percent of Motorola's mobile device R&D is focused such smartphone projects.

"Consumers are migrating towards devices that provide easy-to-use mobile experiences, which increasingly involves data subscription," Jha said. "For this reason, our roadmap has a much greater focus on bringing smartphone functionality into lower tiers... and on experiences around messaging and mobile Internet."

"We've narrowed our platforms and have the expertise in Linux and Java so our team is familiar with the environment and we will deliver compelling applications," he added.

Motorola executives also said they remain committed to spinning out the company's mobile device unit -- a move designed to help the division refocus and recover its lost market share -- but added that this move now appears unlikely to take place anytime soon.

"We remain committed to the separation and we will continue to prepare for a separation at a time that is appropriate for the company and its stakeholders," Brown said.