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Motorola Falls on Cell Phone Slump

Motorola stock fell on preliminary word that profits from cell phone sales won't match expectations. According to analysts, the blame rests at the feet of the world's second-largest mobile phone maker.

In a statement, Motorola said fourth-quarter 2006 sales will reach $11.6 billion to $11.8 billion, down from the $11.8 billion to $12.1 billion projected in October. Motorola stock slipped 7.6 percent, selling at $18.99 in afternoon trading.

"Unfavorable geographical and product-tier mix" were blamed for the downturn in sales and earnings by the Mobile Devices unit, according to Motorola.

The unexpected earnings picture ran counter to Motorola's internal forecast. Falling cell phone profits were juxtaposed with a 23 percent increase in the number of phones sold, according to the announcement.

"We are very disappointed with our fourth-quarter financial performance," CEO Ed Zander said. Jan. 19 Motorola unveils both its fourth-quarter earnings and "plans to improve operating profitability."

Was the bad news for Wall Street due to a depressed cell-phone market or Motorola miscues? A little of both, according to a cell phone expert.

The bad numbers were a result of a "little arrogance" on Motorola's part and marketing mistakes, according to Avi Greengart, cell phone analyst for Current Analysis.

Motorola expected that acceptance of its KRZR handset, unveiled in July, would match that of its previous ultra slimline RAZR. But the handsets were competing with each other, Greengart said.

Although Motorola has done well pushing phones built with style, that lead is eroding as competitors copy the slim profile. Samsung's BlackJack, offered by Cingular, competes with Motorola's Q.

The Q, unveiled in May to battle the Treo, is encountering reluctance by Verizon customers discovering they must buy both a voice and data plan, said Greengart.

Motorola's geographic problems are a reverse of Palm's, which, in November, said an earnings shortfall was due to a snag in U.S. approval of the Treo 750.

Although Motorola is strong in the U.S., it lags far behind giant Nokia in emerging markets, such as India and China, according to the analyst.