Motorola Spins a Turnaround Plan

Motorola (NYSE: MOT), faced with continued losses, plans to debut six new mobile handset devices with features such as touch screen displays, instant messaging and enhanced music functionality, all by the end of the second financial quarter.

Yet the product news announced during this morning’s earnings call did little to appease analysts who peppered CEO Greg Brown with questions on earnings, inventory concerns, market predictions and the status of the company’s split off of its mobile device division.

As one analyst commented, Motorola’s handset unit is in a “death spiral.”

Brown and his financial leaders stayed cool and stuck to their message, despite lackluster earning figures. Brown said the company is “repositioning” for success, and plans are all about “building momentum.”

“We are not looking to play small ball,” Brown told analysts, emphasizing the company is immersed in the split-off work of the handset unit, working to develop new handsets and aims to reclaim market share by year’s end. Motorola’s mobile unit currently account for 9.5 percent of mobile handset sales.

Those are bold words given first quarter results. Motorola reported a loss of $194 million, reflecting 9 cents per share, on revenue of $7.45 billion. Published financial reports indicated analysts had anticipated a loss of 7 cents per share with estimated sales of $7.75 billion.

Today’s earnings were a bit of a dip from the first quarter of 2007, when the company reported a loss of $181 million (8 cents per share) on revenue of $9.43 billion.

Overall sales for first quarter this year were $7.45 billion, a drop of 21 percent year-to-year.

The mobile unit division saw a 39 percent drop in sales in the first quarter, with reported revenue of $3.3 billion. The company shipped 27 million units for the first quarter. Last year at this time it sold 45.4 million phones.

The loss is expected to get worse come the second quarter with the Schaumburg, Illinois-based handset maker predicting it will lose 2 cents to 4 cents come the second quarter though analyst expectations aren’t as dire, expecting just a 1 cent loss.

Motorola shares closed down by 30 cents to $9.25 today, but were headed up slightly in after-hours trading.

“We’re leveraging the talent in our employees, the value of our intellectual property and our place as a design leader,” Brown said. “We’re focused on improving the handset portfolio and pursuing product gaps we need to fill in.”

Those gaps are clearly visible. Motorola’s products don’t feature the flashy touch screen that’s made iPhone, and competing products, wildly appealing to users.

Acknowledging the company’s “embryonic” 3G mobile device product line, Brown said several times that he’s focused on “areas where we have no product today.”

Questioned repeatedly about the announced split off of the mobile division, Brown said the search for a CEO is “progressing well,” but sidestepped inquiries on separation costs, replying initially “we can’t tell at this point,” and later admitting “it will be a large number.”

Brown also dismissed any talk of reversing the split-off decision. “We’re on path and continue to believe it’s the right thing to do to gain structural efficiencies,” he said.

The company, in response to questions about flat inventory numbers, stated that 40 percent of handheld manufacturing is currently outside of Motorola operations and that it aims to better balance that supply chain equation. Yet, once again, Brown and company ducked specifics on what it plans to do in the manufacturing arena going forward.

Neither Motorola, or the analysts on the call, made mention of a sale of the mobile device unit to Videocon.

One industry analyst, who believes a product-led recovery is crucial to Motorola’s resurgence, said the company’s product roadmap likely won’t capture market attention.

“It shows a range of evolutionary products, but, tellingly there are no breakout products,” Carmi Levy, senior VP, strategic consulting, AR Communications Inc, told

One industry publication published last week what it claims are Motorola products in development. Included is a phone called ZN5, featuring a five-megapixel autofocus camera and keyboard working off a Montavista Linux 2.6.1 operating system.

The OS choice, which Levy said could be “significant,” aligns to handset development news Brown did mention during the earnings call. The CEO said both Java and Linux systems would be part of future product development.

Another reported device is the A810. Its familiarity to the popular Chocolate phone may indicate it’s Motorola’s approach for high-end mobile devices.

“It could be their play on a high-style basic handset,” said Levy, noting it features a Linux OS, a two-megapixel camera and stereo Bluetooth features.

“What seems to be missing [in product] is a next-generation of the Q, or any other smartphone-class device,” said Levy. “And that’s not good.”

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